August highlights - Mint Selection Newsletter

Posted on 17 August 2023

Deal doers braced for M&A slog

The European energy transition M&A market continues to be a frustrating place for deal doers, with interest rates remaining high and a new curveball in H1 2023 with the publication of lower than expected long-term power price projections from several of the market’s forecasters.

Certainly, when interest rates started to climb last year the market had expected a partial slowdown in activity as both buyers and sellers recalibrated their expectations. For buyers, the fact that debt had become more expensive, not to mention ongoing power price volatility, meant that discount rates would inevitably need to edge upwards by 100bps-200bps. But sellers, for their part, were understandably reluctant to let go of their pre-interest rate rise valuations.

This gap in expectations was slowly expected to reduce as the market realised that the new conditions were likely to remain for some time, yet this does not yet appear to have happened, based on conversations with multiple Energy Rev industry contacts across Europe in recent weeks. Project disposals and corporate level equity stake sales do continue to come to market, but once launched they now often seem destined to stay there for longer. Some fall over or quietly disappear, although deals are still being done.

The new long-term power price forecasts which came out in the spring have certainly played their part in clogging up the market, as bidders which lodged offers for assets before this point were basing future revenues on higher prices. With the later publication of bearish power price forecasts, multiple bidders have subsequently had to pull out of processes just as these were entering the second round as they could no longer make the numbers work, sources say.

Against this sombre backdrop, potential acquirers are understandably jittery and deals can fall over at a moment’s notice. Sellers can in some instances get well into exclusivity with a buyer, “and then when the buyer has to get final sign-off from their investment committee they may suddenly decide that market conditions have changed too much and scrap the process,” one source told Energy Rev last week.

A process for France-based Enoe Energy is mooted to have reached a very late-stage with a Spain-based fund manager earlier in 2023 before talks were abruptly halted, for example, even if another party is now believed to be in talks to acquire the business.

In the UK battery storage space, meanwhile, KKR Infrastructure in April emerged as the winning bidder for a holding in Zenobe, before then pulling out of the process, purportedly on the grounds of changing market conditions. EQT Infrastructure instead is now believed to be in talks for the interest.

With deal completion risk much more of a consideration in the current environment, financial advisors are therefore being much more picky than normal in which sellside mandates they push for. “If we don’t already have a good idea of who is likely to be the eventual buyer, we won’t take the process now,” one advisor told Energy Rev.

With the market in an ongoing state of flux, numerous investors seem to now be sitting on their hands and avoiding new investments, instead waiting for current market volatility to settle down, even if others with freshly raised funds are still looking to deploy capital. As such, new processes now coming to market across Europe are often, though not always, receiving far fewer indicative offers than 12-18 months ago, industry sources allege. One process in the Nordic wind market that launched recently saw only a handful of non-binding offers whereas the same opportunity in early 2022 would likely have attracted a dozen bidders, it is believed.

In Spain meanwhile, concerns over the availability of EPC contractors ahead of a current mid-2025 commissioning deadline, and heightened power price cannibalisation fears, is leading a glut of solar developers who would otherwise have looked to complete project development and start construction themselves instead put pipelines up for sale.

Reduced demand is therefore leading sellers and their advisors to adopt a much more flexible approach to bidding timelines, with less formal auctions and more drawn out offer deadlines. There is nevertheless a smattering of optimism across the industry that, post-summer, there might be a more widespread acceptance of new market realities, and that buyers and sellers could decide to push on under these new conditions. “Almost all of the parties involved in our M&A processes pre-Q4 2022 subsequently reallocated capital into corporate green bonds, which we saw as an overreaction – however, they can’t go on allocating to debt indefinitely and our hope is that after the summer they come back [to real asset equity deals],” said one European financial advisor.

This readjustment might not be enough to lead to more deal closes in H2 2023, but it would certainly help lead to a pick up in dealflow at the tail-end of the year. Others are more tempered in their forecasting, largely due to the ongoing high cost of debt, which so many energy infra buyers rely on to get deals done. “The high cost of debt really is the elephant in the room, we need to see inflation get under control and I’m not sure that’s going to happen after the summer,” another advisor says.

This could well therefore lead to a prolonged period of strategics and other unlevered buyers dominating M&A processes. In this environment, many fund managers are also understood to be bunkering down and focusing more than ever on optimising their assets.


Germany following spirit of proposed EU planning reforms, while Italy’s ministry of culture fails to read the room 

You would struggle to find a European renewables developer that does not have some grievance with the permitting process for renewable energy projects, with applications often bedevilled by long waiting times, inconsistent experiences across regions within a country or, at worst, archaic ideological opposition at ministerial level. 

These hold ups are coming sharply into view for EU member states as they look to meet ambitious renewable generation targets over the coming years, and a continuance of the status quo would have grave implications for the European energy transition.  As such, with an intention to try and remove such bottlenecks, the EU in late 2022 began to pursue a new policy that would address issues with consenting processes, introducing new emergency measures that bring renewables proposals up the priority list across the EU-27. 

With an overriding principle that clean energy generation is of utmost public interest in a planning context, member state governments agreed to quicken processing times for projects, such as bringing down the current several-year timeline for wind farms to a more palatable two-year maximum for new sites (and one-year for repowering). The EU subsequently earlier this year also moved to rewrite its Renewable Energy Directive (to become RED III) which, alongside generally increased targets for renewables deployment, seeks to formalise the earlier emergency action on permitting and introduces designated zones for faster developments where consents can be expected within a year.

Some months on there are signs that this action is now feeding into improvements in conditions for developers, at least in some member states. Trade association WindEurope, for example, in July hailed Germany for its enthusiastic adoption of the new EU regulations which it names as a reason for a 44% increase in consented wind farms during the first six months of 2023 compared to the same period a year prior. 

This has produced nearly 3.2GW of capacity approved during H1 and started to feed through to a higher volume of bids being lodged in the country’s onshore wind incentives tenders. 

While bidding rounds remain undersubscribed - German federal network agency BNetzA even moved to half the capacity available during the August edition, suggesting there is still room for improvement on the permitting front - things are undeniably moving in the right direction, as can be seen from the increased volumes of capacity coming through the system. 

However, while the EU’s reforms have helped with signalling, others put Germany’s planning improvements down to domestic legislation, driven in part by the appointment of a Green minister [Robert Habeck] to head up the Ministry of Economic Affairs following the formation of the current government in late 2021. This was followed by the unfurling of the Easter Package in 2022, which focused squarely on accelerating the roll-out of renewables in the country.  

Increased tender volumes and financial remuneration for onshore and PV was a signal to push forward renewables, while industry views have clearly been listened to in regards to speeding up “easy wins”, such as the permitting of repowering projects. 

Germany’s law courts are also increasingly citing high public interest reasoning for clearing projects to enter construction, as well as national energy security.

Meanwhile, developers are allowed to skip the environmental impact assessment phase until mid-2024, which is an approach encouraged by both the EU emergency procedures and RED III. 


Italian impasse 

But while the permitting environment in Germany seems to be aligning with the EU’s 2030 renewable energy generation targets, others are still some way from resolving perennial planning issues. Italy, in particular, remains contradictive in its messaging, with some areas of government paying lip service in efforts to source 65% of the country's power from renewables sources by 2030 and to decarbonise industry by 2035, while others continue to oppose renewables planning applications in any way they can.  

The challenge Italy faces is stark. A report published in June by climate change think-tank ECCO and consultancy firm Artelys indicated that the country needs to install 190GW of new renewables capacity by 2035 to meet its targets, which would require an eightfold increase in current annual installation rates. 

The planning system is a key obstacle which stands in the way of this rapid acceleration, with frequent disputes between central and regional governments one of the drags on consent levels, and the Ministry of Culture’s ongoing ideological opposition to renewables another. Under current planning law, solar projects of at least 10MW, or 20MW under certain conditions, and wind projects of over 30MW, need to secure a favourable environmental impact assessment from central government to proceed. 

It is at this juncture that the Ministry of Culture will invariably provide a negative EIA, although this can be overruled by other bodies. One problem is that the MIC is now stalling on providing its negative assessments, which means project developers do not even have a decision to challenge. This then paralyses project development.

“We’ve put in applications in 2021 and not got an EIA assessment yet, even though they’re supposed to have to reply within 180 days - we have to then go through the tribunals which are now loaded up with similar renewables cases,” one exasperated developer tells Energy Rev

Once the project receives its EIA decree, it must then be authorized by the relevant Region by means of an additional authorization procedure (the so-called “single authorization procedure”) during which the building and operation aspects of the plant will be assessed. 

The EU’s proposed planning reforms, while welcome, are not yet seen as a panacea to the country’s permitting challenges.

“The EU initiative has had no impact yet, as there is no penalty if it’s not implemented,” the developer says. 

Under current timelines, solar developers are on average having to wait up to two and half years to get a verdict for their planning applications, which will do little for the country’s efforts to make inroads on its 2030 targets. Wind developments can take far longer.

Investors nevertheless continue to eye the Italian renewables market with keen interest, although developers on the ground stress that patience remains the most important virtue in realising project pipelines in the country.


The highlights were created in partnership with Energy Rev.

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