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Solar in Italy, act II

In Europe, renewables’ boom or bust has largely depended on tariff structures. 

Italy is a perfect example. The country had the fifth-largest solar market in the world last year thanks to years of attractive incentives that led to a rush in development. However, when the government retroactively cut tariffs a few years ago, Italy went from installing 9.3GW in 2011 to 300MW in 2015 (see Sun sets on Italy’s construction boom chart).
This signalled the end of the Italian solar market’s great construction phase, but investors should pay attention to what is happening now. Rapid development created a highly fragmented market. One investor estimated that the biggest players in the region control less than 8 percent of the market. Another pointed out there are roughly 18GW of solar spread across half a million plants. That means Italy’s consolidation phase may prove just as opportunistic as its construction phase, albeit for a different kind of player. 

Italian fund manager Quercus Assets Selection is one of those new players positioning itself to take advantage of this consolidation opportunity. It is planning a first close for three funds this summer, one of which will focus exclusively on Italian solar. According to a source close to the fund manager, Quercus is targeting €150 million for that fund and has a 482MW pipeline of solar assets it is considering.

To get its portfolio started, Quercus nabbed one of Italy’s biggest prizes, a portfolio of solar assets built by French fund manager Antin Infrastructure Partners. The firm partnered with Swiss Life to purchase the 77.1MW portfolio, the fifth-largest in Italy at the time. The firm held a pre-close on its newest Italian solar fund in May to help cover the acquisition costs.

For Diego Biasi, chief executive of Quercus Investment Partners, an advisor to Quercus Assets Selection, solar platforms like the one it is building are perfect for investors looking for yield, even more so if they are private: “[A] private fund is more appropriate than a listed fund for renewable energy investing. What listed investors promise is a growth story. We are designed for people that are not looking for a growth story, but for long-running yield.”

That sage advice seems to have been picked up by NextEnergy Capital (NEC), who tried to raise a listed fund for Italian solar assets on the London Stock Exchange last year but later called it off due to “market volatility”.

NEC is now back and – in a first for the firm – going down the private capital route. The asset manager announced in June it has reached a €150 million first close on its debut renewables private equity fund, called NextPower II. 

NEC said it has received an initial commitment from Prudential Assurance Company and is pursuing a portfolio of around €1 billion in investment value. “We have a strong acquisition pipeline and expect to announce our first investment shortly,” NEC founder and chief executive Michael Bonte-Freidheim said in a statement. 

Consolidation is proof of a maturing market and if an investor acts early, there are plenty of opportunities to choose from – just ask Antin, who pioneered the kind of asset aggregation Quercus and NEC are now going for. 

Like Quercus and NEC, the early investors in Italy’s consolidation phase may be the market’s powerhouse players tomorrow, emerging with the kind of market share no one has yet been able to obtain in Italy. This pattern is likely to repeat itself in other markets where assets are spread out and tariffs have been rolled back, like Spain for example.
The lesson: just because solar’s development boom ends does not mean investment opportunities go bust.