Fortis acquires UNS Energy for $4.3 billion; EdF sells half of Texas wind project to UBS; SunEdison sells $1.2 billion in bonds and redeems $750 million in debt; plus equity and debt transactions...
Renewables at a Crossroads
Investment opportunities in an evolving environment.
players can be segmented into three categories: those that improve technology, those that improve project economics, and those that improve commercialization and marketing.
In recent years, market entrants from other established industries have brought new technologies into the renewables industry, which has helped to lower installed costs and improve efficiency. Nowhere is this more evident than in the solar market, where several big players have joined the fray to take their own shot at capitalizing on the market’s growth. General Electric is reentering the solar battle with a new CdTe design, directly taking on market leader First Solar. Boeing is getting into the mix by applying technology first developed in its satellite business to achieve potentially record-breaking efficiencies for solar panels.
Technology firms increasingly are integrating downstream across the renewables value chain. For example, leading Chinese solar PV wafer and cell manufacturers, such as ReneSola and JA Solar, have expanded their businesses to include module assembly, a critical step in the value chain with low barriers to entry. Further downstream, Sharp and First Solar, manufacturers of solar panels and modules, acquired large solar project developers over the last two years to gain a dedicated sales channel in a competitive development environment and to have an integrated, end-to-end play within the solar market.
Additionally, the renewables sector has experienced dramatic growth in the number of project developers, financial players, and other intermediaries, and this trend has been one of the most critical factors behind the recent boom.
Large international merchants looking for geographic diversification as well as small startups with hopes of landing their first customers were among the throng of project developers that flooded the U.S. market over the past several years. Their participation has helped to identify the most attractive sites and to secure financing, creating a steady pipeline of renewable installations with great potential. Significant competition among developers has helped to maintain pricing discipline in power purchase agreements (PPA). Also, such companies as SolarCity have helped to stoke latent residential demand by leasing solar PV systems for home installations, thereby addressing potential customers’ concerns about financing these expensive systems and managing their maintenance. Though consolidation is likely to occur in the coming years, the robust developer market has already provided a strong foundation on which the industry can continue to grow.
Over the same period, a diverse group of financial players entered the market, providing the funding the industry needed to establish its footing and to identify avenues to cut capital costs and installed project costs. In recent years, a number of firms began specializing in renewables financing, while tax equity partners became increasingly involved; these solutions have offered innovative approaches to overcoming the limitations of existing financial incentives. Infrastructure funds joined them by adding renewables positions for long-term steady cash flows, a trend that likely will continue.
Intermediaries such as REC brokers and green power marketers have provided additional channels to improve project economics. The creation of companies such as Sterling Planet and Green Mountain Energy has enabled project developers to secure incremental sources of revenue to achieve positive