UK Renewable Energy Finance 2017 i
Contents Introduction...1 The future of Renewable Energy Finance Investment...2 The view from Scotland...9 The view from Northern Ireland and the Republic of Ireland...11...14 Solar investment... Onshore wind...18 Offshore wind...19 Biomass... About the research produced by TLT in collaboration with Clean Energy Pipeline. For the purposes of this report renewable solar PV and biomass (including waste to energy). Renewable energy encompasses a number of other technologies accounted for more than 95% of total The investment data in this report was provided by based on publicly disclosed information. This is
Introduction With the sector at a crossroads as subsidy options M&A activity in 2016 and quarter one of 2017. CEP data shows that the investment records set in remains positive. The renewables sector is proving to be robust and resilient as it adapts to a future largely unsupported by the government. deadline drew closer. The end of ROC support means that the number Energy storage has been heralded as the technology particularly those which can demonstrate a viable attracting considerable investment interest. play a critical role in moving the UK towards a future where a large percentage of the energy consumed comes from renewable sources. role as a standalone opportunity and contribute to the pathway to parity. might indicate for the remainder of the year. Energy storage has been heralded as the technology that will change the face of the sector; and projects, particularly those which can demonstrate a viable revenue stacking income model, are already attracting considerable investment interest. 1
The Future for UK renewable energy financing and M&A Senior TLT dealmakers Maria Connolly, Head of Energy & Renewables and Real Estate; Gary Roscoe, Partner Banking & Finance; and Kay Hobbs, Partner Corporate; look at what to expect. How robust is the UK renewables project finance deal pipeline? is particularly apparent where the consolidation review of debt funding arrangements. returns for both investors and funders. forward it will play a part in the overall deal There will be challenges as the sector beyond the mainstays of wind and solar. This is without a doubt due to the restricted supply of new and onshore wind. TLT deal highlight: sale of 61MW solar farm Transaction description: near Swindon. TLT team: Transaction type: Client: 2 UK Renewable Energy Finance 2017
The renewables sector is proving to be robust and resilient as it adapts to a future largely unsupported by the government.
Where are we seeing the most project finance activity, and why? despite nervousness about both the technologies themselves and the vulnerability of fuel supply. through the construction phase towards completion. Energy storage is starting to play an important role in the renewables sector. What needs to happen to make these projects attractive to banks? demonstrable revenue streams. Interest from lenders will follow despite the fact that at most storage developments are still currently funded will be able to present a more informed picture of opportunities lie. subsidy income streams that solar and onshore wind shared will have on FIT or ROC subsidies has been where the developer and battery owner/operator are separate entities. TLT deal highlight: development of energy storage projects Transaction description: and owner of one of the largest combined heat and power plants in Europe. TLT team: Transaction type: Real estate and planning. Client: Low Carbon. 4 UK Renewable Energy Finance 2017
How active will the secondary M&A market be this year? portfolios that are reaching the end of their 4/5 year There continues to be considerable interest guaranteed subsidy income stream are now seen The more assets that an owner can bring into a economies of scale such as proportionately cost of capital will allow the owner to be even more competitive in its pricing going forward. of consolidation in onshore wind and more particularly in solar. There continues to be considerable interest in commissioned assets and projects with a guaranteed subsidy income stream are now seen as low hanging fruit. TLT deal highlight: sale of 25MW Twin Rivers Wind Farm Transaction description: in wind energy. The site contains 14 wind turbines and will generate enough electricity to meet the power needs of TLT team: Transaction type: Client: InfraRed Red Capital Partners. 5
...debt funders will be active in the energy storage arena, but in the short term, energy storage remains an all-equity play. UK Renewable Energy Finance 2017
Has there been much M&A activity around energy storage? Immediately prior to the auctions we saw a number arrangements. We also saw a number of parties to be submitted into the auctions. including those who would have previously only been interested in mature technologies with a which is forcing investors to consider other areas around energy storage. under separate ownership. One thing to note at this stage is that all energy have no doubt that debt funders will be active in the energy storage arena once revenue models the original developer to remain involved in the share asset management role. No doubt it gives What impact has Brexit had on the investment in UK assets from firms outside the UK? member states to consider domestic energy policy and meet set targets in respect of renewable energy accountable for doing. In our view, the renewables sector will remain attractive to foreign investors looking for stable long term revenue streams, which is what current operational ROC and FIT projects provide. tolerance. Solar and onshore wind are secure and large enough to attract continued investment. For
What does the end of the subsidy regime mean for renewables projects? commissioned after this date and still secure ROCs. per delivery year. What role will corporate PPAs play in the development of subsidy free projects? rather than licensed electricity suppliers. scope for securing a premium price over regular. the corporate customer via a licensed supplier term price security....we anticipate seeing further interest in private wire PPAs... TLT deal highlight: acquisition of three solar sites Transaction description: infrastructure. TLT team: Transaction type: Client: Parabel UK Limited. 8 UK Renewable Energy Finance 2017
The view from Scotland An interview with Richard Turnbull, a partner in TLT s real estate group What have been the most active technologies over the last 12 months, and why? For Scotland the main focus has been on wind. There was a rush to build and develop a pipeline of single turbine sites and increased interest in What sort of project finance activity are we seeing in Scotland? ahead of the ROC deadline now try to borrow at more competitive rates than may have been available investing in energy storage options. Scotland is facing the same challenges around What sort of M&A activity are we seeing in Scotland? onshore wind and solar sites that missed out on ROC accreditation. These present new opportunities to regear and develop the best of the sites without renegotiating terms with landowners and revisiting planning applications. Where is the investment coming from? considered by some as more cautious. What trends can we expect in the next 18 months? Wave and tidal technology will develop further. large scale tidal energy farm. In another symbolic turbines later this year. Falling costs are helping to boost the solar roof top advantage of a country with some of the longest the manufacturing sector towards a more circular waste to biogas. although there is a lot that could be done by the 9
Scottish government in terms of policy to ease the implementation of schemes. Local authorities are City Council in particular is a strong contender public/private cooperation and a clear strategy on roll What is the outlook for the renewables market in Scotland more generally? The draft energy strategy for Scotland sets a target ambitious than the rest of the UK. There is every unrivalled natural resources should spur growth. being developed further as other more established technologies consolidate. New onshore wind developments will become be attractive safe havens for investors when they arrive. an area in which we will see an increase in activity. This is not an area which needs subsidies to become planning and property rights. technology improvements such as more modern natural resources and political goodwill to ensure that the industry continues to grow. There is every reason to believe that, with such an underpinning of political will, the wealth of technical expertise and unrivalled natural resources should spur growth. UK Renewable Energy Finance 2017
The view from Northern Ireland and the Republic of Ireland An interview with Andrew Ryan, Partner Planning & Development and Anna Vangrove Associate Banking & Finance of TLT (NI) What have been the most active technologies over the last 12 months, and why? to decline as the years progress. being the main issue deterring developers. With a affected commercial rooftop solar on anything but a relatively small scale. Whilst a number of large scale ground mounted schemes have been developed or are in the prospect in the short to medium term of new viable without subsidy. What sort of project finance activity are we seeing in NI? become operational and are also active in the secure better funding terms. We are also seeing a number of funders who are after two to three years. This type of funding is becoming increasingly favourable for developers running short of time due to their own caution with the comfort of retaining control over their What sort of M&A activity are we seeing in NI? by more discrete specialist funds/investors that which will be highly attractive to investors. Where is the investment in NI renewables coming from? 11
What funding trends can we expect to see in the next 12 18 months? will be attractive to even the most cautious investors. operational sites. What is the outlook for the renewables market in NI more generally? to support subsidy free generation on anything other than a very small scale. submit planning applications for large scale onshore promoting subsidy free renewable generation. Whilst there may be some development of private large schemes given their dependence on the long term covenant strength of a single customer. In will emerge. The secondary M&A market will continue to flourish as funders acquire large portfolios of consented operational sites. 12 UK Renewable Energy Finance 2017
There is clear recognition of the potential for storage to be utilised as a balancing mechanism to increased by the systems operators to provide the necessary will when. What are the opportunities in ROI? EU targets and an increased rate of installation is needed to meet this. The government promises clarity be encouraging community schemes and will focus which subsidies will be available and what form that rather than later so development can start in earnest. There is potential for the development of offshore be positive.
UK renewable energy finance 2016: The big picture Project finance The number of renewable energy deals recorded by aggregated portfolios of sites meant that the overall deal value was actually higher than in previous years. This resulted in the data recorded by CEP showing a It is worth noting that there has been a continual trend wind farm. modelling of the various opportunities remained under review. potential of energy storage. What would further assist deployment would be a focus on understanding and and onshore wind schemes. The Clean Energy Pipeline Global League Tables ranked TLT fifth for the number of project & asset finance deals, advising on 21 deals worth 262 million in 2016. UK project finance by sector 20000.0 250 18000.0 Deal value ( m) 16000.0 14000.0 12000.0 10000.0 8000.0 6000.0 4000.0 2000.0 200 150 100 50 Number of deals 0.0 2009 2010 2011 2012 2013 2014 2015 2016 0 Biomass ( m) Offshore wind ( m) Onshore wind ( m) Solar PV ( m) Number of deals 14 UK Renewable Energy Finance 2017
UK renewables M&A activity by sector Deal value ( m) 7000.0 6000.0 5000.0 4000.0 3000.0 2000.0 1000.0 140 120 100 80 60 40 20 Number of deals 0.0 2009 2010 2011 2012 2013 2014 2015 2016 0 Deal value ( m) Number of deals M&A funding consortia. large scale operational sites reaching the end of their operational sites. as portfolio consolidation of small consented and portfolios owned by the usual large funds and yield a continued rise in the deal value of each individual amongst funds negotiating for the deals available. is so high that they will be forced to consider smaller less traditional technologies such as energy storage. The Clean Energy Pipeline Global League Tables ranked TLT at number three for the volume of M&A deals completed, with the firm having advised on 30 deals valued at 341 million during 2016. 15
Solar investment Project finance the lowest level of investment recorded by CEP long term funding arrangements. Canadian Solar secured the same sum to M&A UK project finance deals by sector as a percentage of deal numbers (2016) 18% 7% 41% 34% Solar PV Onshore wind Biomass Offshore wind partial picture. represents a secure investment with a stable income. still substantial interest from funds in the US and UK to invest in solar. there is considerable capital chasing a diminishing number of available commissioned portfolios. The result has been a supply and demand imbalance forcing funds to consider much smaller deals such and other less tested technologies such as biomass and energy storage. of mature commissioned portfolios came onto the The market has become increasing competitive, and there is considerable capital chasing a diminishing number of available commissioned portfolios. UK Renewable Energy Finance 2017
Overall transaction value has also been impacted as items is not going to have the base value of some of the larger solar sites which have changed hands in previous years. Whilst funds have traditionally invested in solar to come on board at an earlier stage and forward many funds. the site conditional to commissioning. This meant that strong in the year ahead as more commissioned sites come online and as further portfolio consolidation UK M&A by sector as a percentage of deal value (2016) 52% 7% 23% 18% Solar PV Onshore wind Biomass Offshore wind
Onshore wind Project finance historic standards. M&A Energy Partners of a portfolio of wind farms to the UK M&A deals by sector as a percentage of deal numbers (2016) 11% 12% 36% 41% Solar PV Onshore wind Biomass Offshore wind The number of transacted deals recorded by CEP particularly in Scotland. Onshore wind farms are established and understood businesses with performance records and proven 18 UK Renewable Energy Finance 2017
Offshore wind Project finance of developing an offshore array. The Beatrice wind struggle to grow in a political climate hostile to much further development. A considerable leap in funding demonstrates that bank commitment to offshore wind is now firmly in place. M&A UK project finance by sector as a percentage of deal value (2016) 69% 6% 14% 11% Solar PV Onshore wind Biomass Offshore wind The largest of these transactions was the sale by including transmission assets. CEP estimated that in renewables are now prepared to put money into portfolio. With an increase in the number of players focused and consider technologies they would not have previously considered. Funds have historically invested in offshore wind becoming more common. 19
Biomass Project finance the technology become more acceptable. M&A single deal was Copenhagen Infrastructure II and developed by Estover Energy. CEP estimate that which limits the scope for transactions whilst supply and proven technology. Renewable Heat Incentive response to a wide ranging consultation on the we saw early last year in relation to the FIT scheme. It is also possible that one particular change to accreditation mechanism under the FIT scheme. Biomass, waste-to-energy projects and district heating schemes are markets which will continue to develop as lenders look to diversify their lending. UK Renewable Energy Finance 2017
Contacts If you are interested in any of the services above, or would like to discuss other ways in which we can assist you on your compliance journey, please do not hesitate to contact us. Maria Connolly T E maria.connolly@tltsolicitors.com Gary Roscoe T E gary.roscoe@tltsolicitors.com Andrew Ryan T E andrew.ryan@tltsolicitors.com Kay Hobbs T E Richard Turnbull Real Estate Scotland T E richard.turnbull@tltsolicitors.com Anna Vangrove T E anna.vangrove @TLTsolicitors.com 21
TLT LLP tltsolicitors.com/contact Belfast Bristol Edinburgh Glasgow London Manchester Piraeus TLT LLP, and TLT NI LLP (a separate practice in Northern Ireland) operate under the TLT brand and are together known as TLT. Any reference in this communication or its attachments to TLT is to be construed as a reference to the TLT entity based in the jurisdiction where the advice is being given. TLT LLP is a limited liability partnership registered in England & Wales number OC308658 whose registered office is at One Redcliff Street, Bristol, BS1 6TP. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under ID 406297. In Scotland TLT LLP is a multinational practice regulated by the Law Society of Scotland.