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Do Renewable Asset M&A Multiples Point to a Bubble?


The M&A market for renewables assets gained momentum over the past decade (Figure 1), demonstrating increased interest that we attribute to cost declines, stricter government policy and growing societal support. Recent high-water mark deal multiples of $8-$10 million/megawatt (MW) observed in the North Sea raise the question of whether renewable asset valuations are floating in a bubble.

Improvements in asset performance and declining costs in the renewables space are the same characteristics that drove a “hype curve” in shale plays like the Delaware Basin in Texas and New Mexico, which at its peak saw a fivefold appreciation in land value as buyers grew comfortable with increasingly aggressive M&A multiples. But our analysis of ~$130 billion of solar and wind transactions since 2010 revealed a surprisingly stable average multiple of ~$3.5 million/MW. Since most transactions occurred during or after construction once the distribution of future cash flows was established, little room was left  for asset value speculation.

While the North Sea’s $8-$10 million/MW benchmark may seem exuberant at first, we believe it is justifiable based on certain legacy programs that set high prices to encourage the development of power generation projects from renewable energy sources. Our analysis of the levelized cost of energy, which measures the cost to generate power over a plant’s lifetime, for U.K. wind farms alongside policy-set pricing showed $100/megawatt hour spreads through the back half of the last decade – bringing multiples of $10 million/MW into the money. However, this price-setting mechanism has since been discontinued in favor of a competitive bidding process, which we believe will eliminate the spread and cause M&A multiples in the region to converge towards $3 million/MW – on par with industry average. Click here to learn more about Enverus’ Intelligence solutions.

FIGURE 1 | Renewable Asset Generation Deals Over the Past Decade

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