Looking beyond - KPMG's perspective on the market | KPMG | GLOBAL

Looking beyond - KPMG's perspective on the market

Looking beyond - KPMG's perspective on the market

Renewables - particularly operating renewable assets - have become a very attractive investment proposition for many different investors including, institutional investors such as life and pension funds, utilities, corporates, infrastructure and energy funds and family offices. The significant growth in renewable energy funds in the alternative asset management sector is noteworthy in itself.

There are a number of trends in renewable M&A activity that should be highlighted:

Institutional investment - attractiveness of alternative asset classes

  • Over the past 20 years, institutional investors have survived many volatile market swings. As a result they are shifting investments away from low-risk, fixed income government and corporate bonds in favor of alternative investments such as renewables. Renewable assets offer many advantages to institutional investors including annual yield, long-term investment horizon, scale and long-term income protection especially where FITs or similar arrangements are in place. Some institutional investors are now pursuing a model whereby they invest directly into alternative assets such as renewables and have developed in-house capabilities to directly and actively manage.

Development platforms

  • Investors are seeking more innovative solutions to access operating assets. As a result, investors are increasingly seeking to enter into framework and platform agreements with developers. Under these agreements, they would provide financial support during the development phase in the form of equity or debt with an option to acquire the assets either at pre-construction or post-construction, broadly at market price.

Various other trends that have become prevalent in the marketplace include:

Battery storage

  •  There have been remarkable developments in the area of battery storage in recent years as the technology improves. As a consequence, we see this becoming a significant new area for investment for 2018 and beyond.

Emerging economies

  •  As accessing investible renewable assets in major developed jurisdictions is proving more and more difficult, investors are now looking elsewhere more frequently. In particular, institutional investors are focusing on emerging economies including Mexico, India, Vietnam, South Africa and Chile for renewable assets.
  • Affordable solar energy also offers a potential solution to emerging economies in Africa and elsewhere. The deployment of affordable solar energy can unleash further economic development, while at the same time providing clean, affordable and sustainable power.

Offshore wind

  • Offshore wind is expected to continue to expand in the coming years. Sentiment from institutional investors has clearly changed and this has been evidenced through numerous transactions in the offshore wind markets in northern Europe.

Responsible investment

  • The area of responsible investment is becoming a key factor in driving investment policy from the institutional world into the broad area of sustainability, particularly renewables. This is prevalent among pension fund managers who are actively adopting responsible/environmental, social and governance (ESG) principles into their investment strategy.

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