£11bn investment in UK solar driving increase in M&A activity

Solar M&A activity is on the increase following £11 billion worth of investment in UK solar projects since 2013, according to statistics collected by Clean Energy Pipeline for a joint report with UK law firm TLT.

The report ‘UK Renewable Energy Finance 2016’, found that in 2015, the number of deals tracked by Clean Energy Pipeline increased by 14%, representing a total acquisition of £1.6 billion of solar assets.

The first quarter of 2016 looks equally robust with £333 million already reported driven by deals such as Fengate Capital’s acquisition of a 45.1 MW portfolio of two solar projects, which TLT advised on.

TLT’s Maria Connolly, head of real estate and energy & renewables, said: “The large number of solar projects brought online in the last two years has created a large pool of de-risked assets that are attractive acquisition targets for institutional and other low-risk investors. This is likely to continue well into 2017.

“Many transactions in the early part of 2016 relate to disposal of operational projects that were commissioned by 31 March 2015 or the disposal of consented projects that qualify for the grace period. The main activity is coming from further disposals of projects, largely on a portfolio basis.”

M&A activity is expected to remain strong, as further projects are commissioned under the grace period rules, which will no doubt come to market once operational.

Project finance investment in UK solar projects increased year on year from 2013 through to the end of 2015, with a record £4.8 billion invested in 2015 – a 12% increase on 2014 and a 155% increase on 2013.

Maria Connolly continued: “The main activity is coming from the refinancing of ground mounted, commissioned solar PV. A number of these refinancings are for 1.4 ROC projects that were installed at the end of March 2015 or projects which have been built under the 1.3 ROC regime and recently commissioned.

“Alongside this we have seen a series of funding transaction not only initiated out of acquisitions, or simple financing of individual project, but also aggregated portfolios being put into long term funding structures.”

This increase in financing activity is directly linked to many projects which were funded on balance sheet or equity funded during the construction phase, these projects are now being re-financed.

Maria Connolly commented: “Ground-mounted solar in the Republic of Ireland will be the next big opportunity for investors with land agreements being signed off and developers already investing huge sums.

“A number of developers are also looking to refocus their efforts in other technologies including energy storage, which will likely trigger an increase in the deployment of solar portfolios, both rooftop and ground–mounted on a co-location basis.”

A strong project finance deal pipeline, particularly in solar PV and offshore wind, is supplemented by secondary market investment opportunities, where long-term institutional and overseas investors are becoming increasingly active.

The report also revealed the high levels of investment in 2015 across the renewables market, largely down to pending subsidy curtailments and regulatory change. Although this is unlikely to be repeated in 2016, early indications suggest a positive outlook with significant opportunities still available for investors in the UK renewables market.