This article originally appeared in The Herald on Tuesday 18th April 2017.
Wind and solar project sales do well as buyers from all over the world take interest, says Anthony Harrington
The demise of onshore renewables subsidies, apart from exemptions for some schemes that were already partially under way, has created a market perception that there is likely to be a shortage of supply over demand for wind assets.
This has boosted transactions in the secondary wind market and added value to existing projects. In the process, as Mike Kane, a partner in Turcan Connell’s business law team notes, some quite substantial projects have been changing hands – Terra Firma recently agreed a sale of the Infinis portfolio of 409 megawatt of onshore wind to institutional investors.
“We are seeing appetite for the acquisition of operational projects across a range of technologies covering wind assets, with everything from 500kW plus of generation capacity being in demand.
There is also demand for solar projects, bundled small scale biomass, renewables related special purpose vehicles, AD plants and operational hydro schemes,” he notes.
Kane points out that Private equity (Pe) and institutional purchasers are fond of these assets since electricity generation has strong recurring cash flows, is relatively low risk and, particularly in the case of wind, has low exposure to employment-related issues.
At the same time, there are clear incentives for sellers who can take advantage of better tax regimes. Running a project will likely result in income tax at a rate of 40 to 45 per cent, whereas a sale would most likely move the proceeds into the capital gains tax regime with the rates as low as 10 per cent.
“A sale de-risks the project and the investment and allows funds to be recycled into a broader range of assets. From a purchaser’s perspective, if there is a track record of a couple of years of generation data, the cash flows should be relatively predictable. As there has been a slowdown in construction, this perceived constraint is perhaps pushing the ticket price of projects up,” he says.
The funding market has also noticeably matured as funders have become more comfortable with the models and associated risk and there is a wider range of funding options compared to the earlier part of the cycle. Turcan Connell’s clients have been involved in sales with buyers from far afield.
“We are seeing money from VC funds in the US and there are some Far East purchasers. It would seem that the uncertainties surrounding Brexit and a possible Scottish Independence Referendum Mark 2, are not overly discouraging foreign investors in this sector,” he notes.