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Renewable Asset M&A Market Insights: North America – Q4 2022

Market Insights
February 2, 2023

2022 has been a fantastic second year for LevelTen Asset Marketplace. We realized solid deal flow in an underwhelming year for overall M&A activity. The industry experienced an array of developmental challenges — ranging from supply chain constraints and interconnection queue bottlenecks, to skyrocketing interest rates and labor shortages. The Inflation Reduction Act was passed by surprise in August, promising accelerated growth in the renewable energy sector. Short term, the IRA’s impacts on project valuation remain to be seen. The exception to this was standalone storage projects, where we saw an immediate increase in project valuation and transactions coming into the market. 

Indications are for increasing project M&A in 2023. Renewable energy demand continues to grow and supply chain and interconnection issues are becoming more clear, leading to more projects coming onto the market. As the industry transitions to address logistical and policy shifts both positive and negative, one thing has remained clear: clean energy project M&A will continue to play a defining role in how the energy transition plays out.

Pre-construction Project Valuation

Last quarter, LevelTen released its inaugural quarterly pricing analysis for pre-construction renewable energy projects in PJM, MISO, and ERCOT. Since our last report, these numbers have remained relatively unchanged. The figures below are based on developer fees from transactions that we have executed, transactions we have heard about, and general market feedback from customers. Generating this type of information is an inexact science and our data currently reflects wide spreads. As we continue to collect information, we will be able to add additional regions and more refined insights. 

Since the passage of the IRA, many investors and companies have been reassessing valuations of projects. The impact of the IRA on developer fees remains to be seen as we are awaiting IRS guidance on a number of key areas.

The above metrics reflect solar only. Our data set for wind is too small at this time to provide meaningful analysis, but our experience suggests that transaction prices and structures for wind closely align with the solar metrics above.

Significant pre-construction storage entered the market in Q3 and Q4 and has seen a market ready to transact. We are seeing mature 2023/24 COD project offers in the $0.12 - $0.16/W DC range, with outliers above this range for highly desirable projects. This compares to $0.06 - $0.08/W DC for comparable offers pre-IRA. While these bullish project valuations are likely to decline in the future, this doubling speaks to the way in which the IRA’s incentives have transformed renewable asset financials.

The timing and structure of these payments is equally important as the prices themselves. In the past, the most common fee structure involved a return of the seller’s invested capital at transaction close, and a development fee paid upon the satisfaction of pre-defined milestones en route to COD. We have seen more and more upfront payments for a portion of the developer fee for projects across North America. This is requiring buyers to accept development and completion risk that has traditionally been carried by the seller. We expect this trend to continue in 2023. 

Transaction Activity and Results

The industry experienced substantial uncertainty during the first half of 2022. This was reflected in the M&A activity for 2022, as the U.S. power and utility sector experienced a year-over-year decrease in deal value of 29% according to PwC. Transactions fell from 56 deals worth $53.3B in 2021 to 38 deals worth $37.9B in 2022. Despite this, renewable energy-related transactions’ share of total power-sector deal value grew significantly during this same period, from 32% in 2021 to 71% in 2022.

While deal value grew, solar and wind project deployment fell in 2022 compared to 2021. Only battery storage increased deployment compared to the prior year. 2022 was the first year in recent memory that the industry has not experienced a growth in installations. This was primarily due to project delays and increased costs caused by difficulty securing solar panels, supply chain delays, labor shortages, and sustained interconnection queue backlogs. In some cases, these factors made projects uneconomic, forcing developers to renegotiate contracts or find alternative paths toward feasibility. All of these factors have pushed back CODs for many projects.

The industry was taken by surprise in August by the passage of the Inflation Reduction Act (IRA). While the incentives in the IRA provided unprecedented financial certainty for developers and investors in the long term, it has caused some short-term delays that contributed to the drop in installations. The IRA introduced ITC/PTC optionality, additional tax credit adders, transferability, and has made storage assets eligible for the ITC. These new incentives required many developers to pause and evaluate their impacts on project economics, including reassessing project pricing and valuations for in-progress transactions — which pushed back CODs. We expect to see an uptick in installations this year as these delayed projects come online and additional guidance is released by the IRS. The full impacts of the IRA most likely won’t be felt until 2024. 

Despite (or because of) the excitement around the IRA, there have been numerous recent reports of major utility companies selling or preparing to sell portfolios of (unregulated) renewable energy assets, including: 

We expect that these divestitures are part of utilities’ strategy to put returns towards their core business and future growth by focusing on regulated assets including transmission and distribution and other non-wires investments that can be rate-based. With the new renewable energy incentives, investment returns may decline due to market saturation, and utility planners want to provide their investors with certainty and predictability.

While we may see a transition of renewable energy asset ownership away from integrated utilities, there are a large number of investors willing to take on the risk and rewards of privately owned renewable energy projects. On the LevelTen platform, we are seeing a steady supply of new entrants: new energy-focused funds raised, new developers formed, developers expanding with institutional capital backing, and foreign investors and developers entering the market. The LevelTen Energy Asset Marketplace Team has been busy this year with many deal closings, and enters 2023 with a full pipeline.

Here is a list of some of the deals closed on the LevelTen Energy Asset Marketplace in 2022: 

M&A has been central to many industry players’ core strategy to increase scale, grow pipelines, and enter new markets. New market entrants — such as oil and gas majors and financial institutions — have also used acquisitions to expand capabilities and enhance their value chain positions, leading to a huge demand for renewable energy platforms and projects. 

In early 2022, we saw very few projects for sale to meet this demand. Throughout the first half of the year, we saw the number of projects for sale start to increase — especially standalone storage projects.

Below is a comparison of the project locations of the North American sell-side asset auctions that LevelTen issued in 2022, and the project locations of North America auctions issued since the Asset Marketplace launched in Q2 2021.

The introduction of the IRA also spurred a number of sales at the end of 2022. High interest and inflation rates resulted in high cost of capital. Paired with rising development and construction costs, developers are struggling to maintain margins. We expect that we will see an increase in the number of for-sale projects in 2023, as the higher tax credits included in the IRA incentivize developers to sell prior to COD to realize the basis step-up and recycle capital. Because of this, we expect a large amount of M&A activity in 2023.

Project Development Velocity

LevelTen’s mission is to facilitate the energy transition through our marketplaces and our market intelligence. In other words, we aim to increase the velocity with which renewable energy projects move from ideation to displacing fossil-burning power plants. Unfortunately, development velocity has continued to suffer in the fourth quarter due to key bottlenecks like difficulties with interconnection processing by the ISO/RTOs and procurement of key equipment both domestically and from abroad.

Queue Reform

With regards to interconnection queue congestion, the Federal Energy Regulatory Commission (FERC) issued the 'Improvements to Generator Interconnection Procedures and Agreements’ to address congestion in the interconnection queue. The proposal suggests implementing a first-ready, first-served model (versus the current first-come, first-served approach), penalties for transmission operators that miss targets, and the adoption of new technologies to assist in increasing capacity on existing transmission lines. Comments on the notice were due October 13, 2022, and while largely supportive, were of such volume that FERC extended the period for reply comments to December 14, 2022, with final rule issuance expected in the first half of 2023.

In parallel, on June 14, 2022, PJM issued their own revamp of the interconnection process, mimicking the FERC process redesign and those of MISO and SPP. This approach provides for clustering of interconnection requests, increased deposits for interconnection applications, and increased costs for walking away from an interconnection request once in process. The reform adds a significant risk component for the developer by requiring a $4,000/MW deposit: 50% of which remains at risk through the early stage of the study period, and the remainder of which remains at risk to cover underfunded portions of upgrade costs in that specific cluster study period. On November 29, 2022, FERC largely accepted the reformed process, and implementation is expected early in 2023.

While likely to reduce the level of speculative projects entered into the interconnection queue, PJM’s reform is hardly a silver bullet — as can be seen in MISO and SPP where similar queue reforms have not alleviated congestion amid widely fluctuating interconnection costs. Recently published reports from Lawrence Berkeley National Laboratory on interconnection costs in PJM and in MISO show average interconnection costs for projects with completed interconnection studies have escalated in excess of two-fold in the most recent two years from previous study periods.

Equipment Procurement Delays

Project deployment showed its first annual decline in recent memory during 2022. In addition to interconnection queue congestion, equipment and labor supply constraints have been cited as a major factor in the delays.

On December 2, 2022, the Commerce Department announced its preliminary determinations in the import trade tariff circumvention inquiries regarding solar cells and modules from the People’s Republic of China. Four companies were found to have circumvented tariffs, and multiple others were implicated based on failure to answer requests for information. Four major companies (New East Solar, Hanwa, Jinko, and Boviet) were not implicated in circumvention, providing clarity to developers that these suppliers were free of tariff risk — though the Commerce Department’s final decision on the investigation will likely come during Q2 2023. What’s more, the Biden administration has provided a two-year moratorium on the 239% tariff that could be charged on offending panels, which ends on December 3, 2024.

The Uyghur Forced Labor Prevention Act (UFLPA) was signed into law by President Biden on December 23, 2021. As cited by Reuters on November 11, 2022, “U.S. Customs and Border Protection has seized 1,053 shipments of solar energy equipment between June 21, when the Uyghur Forced Labor Protection Act went into effect, and Oct. 25.” Further, this amounted to over 1 GW of panels from suppliers, representing up to one-third of U.S. panel imports. LevelTen’s Q4 2022 North America PPA Price Index Report takes a deep dive into the broader impacts the UFLPA is having on the U.S. solar industry. 

Beyond these woes impacting solar deployment, transformers — equipment fundamental to all new power projects — are in short supply. According to a report from the American Public Power Association, transformer delivery lead times have grown significantly longer, “from about two to three months pre-2021 to about 12 months in 2022. Some utilities reported being quoted lead times of more than three years.” As well, projects face delays in copper cable. Supply chain, logistics, and labor issues also impacted the delays and price escalations, but the impasse here seems more systemic, as copper production is unable to keep up with demand. The good news in equipment procurement is that the raw materials underpinning the equipment — aluminum, copper, steel and polysilicon — all saw significant price declines in Q4 2022: though these prices still are at a significant premium to recent years.

Labor shortages have also slowed down the velocity of the energy transition. According to the National Solar Jobs Census by the U.S. Interstate Renewable Energy Council, 89% percent of respondents in 2021 reported having difficulty finding qualified applicants, including 35% that said it was “very difficult” and 54% reporting it was “somewhat difficult.”

Project Finance Market

Project finance availability has not been a hindrance to the construction of renewable energy projects, albeit tax equity estimates suggest a 10% volume decrease ($20B in 2021 to $18B in 2022) which can be largely attributed to the aforementioned slowdown in construction. Further, project finance credit spreads have widened slightly from the bullish period in 2020 and 2021, and due to the increase in the federal funds interest rates targets.

Discussions LevelTen carried out with capital markets participants provided insight into current spreads and volatility in light of the 425 basis point (bps) increase in the fed funds target and the inverted yield curve. Current project debt spreads range from SOFR plus 175 bps, to SOFR plus 225 bps. Debt service coverage ratios on fully contracted cash flows are between 1.2x and 1.25x at a P50 production level for solar, and 5-10 bps over this for wind. Merchant cash flows are credited with 1.9x to 2.25x coverage at a P50 production level. Standalone storage is realizing similar spreads and coverage ratios with less appetite for merchant cash flows. Construction debt spreads have seen a significant increase over the last year, moving from as low as <75 bps to 100-125 bps over SOFR.

The tax equity market remains robust with flip yields in the neighborhood of 7-8.5%, approximately 100 bps wider than yields last year. The return hurdles have advanced with the underlying increase in the treasury market as well as supply/demand dynamics, but not at the same pace as the underlying treasury yields.

All eyes in the tax equity space are on forthcoming IRS guidance on the new tax credit transfer market and how it will impact competition and yields on traditional tax equity, with a particularly pertinent point being whether the IRS will seek redress from the tax credit buyers or project owners in the event of a tax equity clawback. The introduction of new tax credits for storage, hydrogen, and carbon capture in the IRA will, no doubt, increase competition for available tax credit investors. Near term, tax credit transfer deals will likely continue to involve the traditional tax equity investors who can sleeve and support tax indemnity for tax credit buyers and realize a tax basis step-up in the ITC calculation. Longer term, disintermediation will provide the full value of the tax credits directly to buyers, and may incentivize project sales prior to COD to realize the tax basis step-up in the ITC. Increasing the pool of these buyers for tax credits will ensure that the promise of the IRA can be realized.

As with all market surveys, the above metrics are generalized, and individual projects and borrowers may see widely varying funding costs.

Bring Your Own Load (Hydrogen and Crypto)

The LevelTen Asset Marketplace saw a large number of inquiries seeking projects with very low levelized cost of energy or significant curtailment, mostly in ERCOT. The genesis of these inquiries was strategies by the prospective acquirer to bring their own load (typically bitcoin mining or green hydrogen development), but also included other new industrial development seeking to arbitrage the low cost of renewable energy and capture the extrinsic benefits of green installations.

Crypto mining is the butt-end of crypto currency, non-fungible tokens, and many of the headlines in the financial press all year. Crypto mining requires access to plentiful, low-cost energy, and its energy intensity has driven the industry to embrace renewable energy as a clear preference to drawing large volumes from brown power grids. As well, crypto mining energy use can be curtailed during peak hours, providing for demand response and load reduction when the transmission grid gets constrained. These factors allow crypto miners to locate where transmission constraints or load fluctuations are volatile. Throughout the year, crypto miners and their representatives have approached LevelTen seeking opportunities to partner with or acquire solar and wind projects that map to their energy needs. Recent headlines around the implosion of FTX have thrown shade on the future of crypto mining. Whether the industry can maintain growth despite these recent developments may have some impact on renewable project development in 2023 and beyond.

Green hydrogen development has exploded since the passing of the IRA. The IRA provides for a production tax credit of up to $3 per kilogram for 10 years on the volume of hydrogen produced, or an investment tax credit of up to 30% of the cost of the electrolyzer and other equipment. Bonus credits resulting in a total ITC amount of up to 50% could be available for plants in energy communities (as defined in the IRS code above) or that use domestic content. Needless to say, these credits have driven new development of hydrogen facilities supported by renewable energy. 

On November 3, 2022, the IRS requested comments on how the IRA’s new clean hydrogen tax credit should be implemented. At this point, inquiries into the acquisition of renewable energy projects to back hydrogen production are largely just that: inquiries. Green hydrogen’s ultimate impact on renewable energy development and M&A will revolve around the rules for implementation delivered by the IRS and the DOE — specifically, where and how renewable energy contracts can be used to count for production of green hydrogen and, thereby, receive tax incentives.

LevelTen’s Asset Marketplace: Your Key to Success In Today’s Market

In today’s fast-paced and highly competitive market, every advantage counts. LevelTen Energy’s Asset Marketplace connects clean energy project developers and financiers, and provides the software, analytics, and M&A transaction expertise they need to execute transactions quickly. Our team of M&A experts are ready to help you make the right move at the right time. 

To learn more about how your organization can leverage the LevelTen Energy Asset Marketplace, contact Patrick Worrall at, Clare McReynolds at for North American opportunities, or Carlos Almodovar at for European opportunities.

Patrick Worrall

Patrick is an accomplished business development and energy finance leader with broad strategy, capital markets and transaction execution experience. His professional background includes project and acquisition finance, tax equity, commodities structuring, infrastructure private equity, restructuring and M&A. Prior to joining LevelTen, Patrick led teams at Sunnova Energy Corp., Riverstone Holding’s conventional power platform, Constellation Energy and Deutsche Bank. Patrick has closed energy and industrial debt and equity financings in excess of $25B, including multiple renewable energy successes. Patrick received his undergraduate degree in economics from University of Virginia and masters degree in business from Darden. He is an avid conservationist, having served on multiple boards and committees, most recently as an award-winning mentor for the CleanTech Open and as a mentor for Austin Technology Incubator at the University of Texas.

Clare Daly

As M&A Solutions Manager, Clare oversees all Asset Acquisition RFP and Asset Auction processes.

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