eDGe Renewable Partners Capital Raising Market Update - For Renewable Energy Developers

We hope you all have been staying healthy and safe. Given these unusual times, we though we should share with you some insights about what we are currently seeing with capital raises for renewable energy projects, globally (Wind, Solar & Storage). We have also provided some suggestions for small & mid sized developers on how to manage the current situation if they are planning for, or are going through, a capital raise.

1 - Appetite From Large Institutional Investors

 We have noticed that large institutional funds with public and private market exposures; are slowing down their pursuit for new investment opportunities in renewables. This could be due to:

A - Funds might be reallocating their assets after the significant drop in public markets. Funds have an asset allocation target (percentage of total assets) to private markets (as well as to specific industries inside their private market allocation such as real estate, infrastructure, private equity, etc.). Now – as you might expect – there should be an over-allocation to private markets as the public markets asset value fell sharply in the last month. This will require sometime to readjust the portfolios and reset the mandates, risk/return profiles and targets. 

B - Funds might seek opportunities in public market securities that could provide a better risk/return profile; as some stocks/bonds look cheaper due to the market drop/sell-off.

 For example, Brookfield Renewable Partners (BEP) have seen it’s stock drop by nearly 30% (it was down 46% last week) from it’s peak price in February-2020. The stock now offers a dividend yield of ~5.3% (reached 7% last week), up from 3.8% in early February.

2 - Small and Mid Sized Private Markets Investors

On the other hand, we have noticed that small & mid sized funds - with <$1B under management - who have a focus on private markets only, are active in the market and are looking for opportunities.

Most of those funds can move quickly as they have small management teams & investment committees. They also have a clear and specific mandate to invest in certain renewable assets, are not directly impacted by private markets, which makes them able to move quickly if the investment opportunity fits with their mandate. 

3 - General Market Sentiment for new Renewable Energy Investments:

There is a general perception in the market that assets are, or should be, cheaper. Consequently, most funds/investors are looking for unique opportunities to invest in deep value or distressed assets. Even if the fundamentals of the capital raise, or the project, are not directly impacted by the current public market selloff, the sentiment of investors alone could cause a drop in the private assets' value.

What should Small and Mid Sized Developers do:

1 - Prepare for a detailed diligence and worst cast scenarios:

 We believe that the times we are in now, require re-adjusting the financial models and projections, from the base case scenario to lower growth scenario, prolonged capital raises and unfavorable debt terms.

We strongly believe that developers who are better prepared and well organized will have a much easier capital raise process as investor averse from that was easier to underwrite a few months ago.   

2 - Prepare to talk with as many investors as possible:

 As we mentioned above, private renewable energy opportunities are not only competing with their peers in this tight market, they are also competing with public market securities. Developers should thus prepare to talk with as many investors as they possibly could to find the right investor.

We strongly believe that this is not the best time to try to convenience investors with the risk/return profile of an opportunity, but this is the time to find the investor who is already in the market, actively looking, for an opportunity similar to what you are presenting.

3 - Prepare to explore different financial structures: 

 Finally, we advice developers to stay open to both debt and equity investments, and be flexible to other possible structures as partnerships, co-investment, co-development agreements with the main objective being liquid for the next 12-18 months.

We sincerely wish everyone good health, safety, and the best of luck in those challenging times. 

At eDGe Renewable Partners, we are helping small and mid-sized renewable energy developers identify & connect with the best strategic partners & options; that are critical to their growth and sustainability. Our clients are located in Canada, USA, Norway, UK, Italy, Germany, Romania and have projects in North and Latin America, Europe and Africa.  

To learn more about our services, please feel free to connect with us at samy@edgerp.ca