Structuring European renewables infrastructure investments in a post-subsidy world - Capital Dynamics

LAPF Investments, August 2018

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Renewable power infrastructure in specific parts of Europe can sometimes complete directly with conventional fossil-fueled technology. Barney Coles, Principal of Capital Dynamics, examines the challenges faced by investors in determining the full value of the asset class.

In particular, over the last fifteen years, long term fixed-price subsidies for renewable energy infrastructure in Europe have attracted substantial volumes of low-cost capital to the sector. This has underpinned a period of tremendous growth and cost rationalization, bringing the industry to its current level of maturity. The recent trend of governments withdrawing subsidies from the sector is a signal of the industry’s success; renewable power infrastructure in specific parts of Europe can now, under the right management, compete directly with conventional fossil-fueled technology in providing a country’s new power generation capacity. The challenge to delivering this competitive infrastructure lies in attracting lower risk capital in a world without subsidies. This requires renewable energy managers to leverage the growing demand for renewable sourced power, particularly from corporates, to structure attractive, long-term de-risked revenue streams for investors in renewables projects through structured PPA arrangements. The full value of this asset class’ risk-return profile is not easily accessible to all investors. The identification, optimization, construction, operation and financing of projects that deliver attractive risk-adjusted returns in the new world requires specialized knowledge across many aspects of power market operation. This includes financing, engineering, development and contracting, as well as deep industry relationships. It is imperative to partner with an experienced industry specialist who can addressthe risks that less experienced investors may face when identifying the highest-quality renewable projects, and understanding (and pricing) the nuances that make these assets most suitable for long term investors.

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