Sector focus: Generation

The American dream edges closer to reality for renewables investors. Yet intense competition threatens to drive down returns.

Renewables have had a good pandemic. Around the world, governments seeking to revive their stricken economies and respond to public demands to ‘build back better’ have adopted investment in green infrastructure as a key stimulus measure. GPs have also enjoyed happy hunting on the fundraising front, with commitments flooding into a host of multi-billion-dollar renewables funds.

Nowhere is the acceleration towards renewable generation more visible than in the US. In July, we reported on the growing trend for European infra managers to venture into the stateside renewables market.

London-based InfraRed Capital Partners, which has a large portfolio of renewables assets in the UK and France, is one of many European managers to target opportunities across the Atlantic. The firm’s CEO, Werner von Guinneau, told us it “saw an excellent opportunity in the Americas, particularly in the renewables space”.

InfraRed was far from the only firm to spot the opportunity. Quinbrook co-founder David Scaysbrook told Infrastructure Investor in October that there were “more new entrants coming into the market than we have ever seen before”. Investors, he said, were being encouraged by the fact that wind and solar assets “can be built at a fraction of the cost of new fossil fuel plants – even with relatively cheap gas”.

That was before the US presidential election provided yet another boost to renewables. Donald Trump had a famously antagonistic relationship with what he called ‘windmills’ and his administration showed little inclination to support renewable energy operators. Joe Biden, by contrast, took office in January promising a $2 trillion green stimulus.

Risk of overheating

Yet there is a risk that the US renewables sector may be close to overheating. With so many projects adding generating capacity, offtakers are enjoying a buyers’ market. “It is a great time to be a scale buyer of renewable energy but more challenging if you are a developer,” Scaysbrook cautioned. Low energy prices – due in large part to covid-19 – also make the market less attractive for potential developers.

BP joined the rush in September with the announcement of a $1.1 billion investment in two US offshore windfarms being developed by Equinor. The supermajor has been buying up wind assets around the world, including in the UK, as it seeks to capitalise on the energy transition. However, BP’s willingness to pay seemingly inflated prices has invited scepticism about its ability to achieve acceptable returns. In March, Patrick Pouyanné, CEO of BP’s rival Total, described some renewables valuations as “crazy”.

Wind and solar continue to face political opposition, especially in the US. Critics of renewables were quick to capitalise on the widespread blackouts amid winter storms in Texas, noting that 18GW of renewable energy went offline as turbines froze. The same critics, however, were rather quieter about the similar fate that befell natural gas pipelines and some nuclear plants in the state.

Stories of the year

Green investors clamour for a piece of the American pie

May 2020 Quinbrook Infrastructure Partners launches a US solar platform business

July InfraRed Capital Partners announces North American renewables fund

September BP invests $1.1bn in two US offshore wind assets

January 2021 Greencoat Capital enters the US market with a stake in a wind portfolio