Solar Power Project M&A Activity Tops Record-Breaking 3.9 GW In 2011


Investors bought a record 3.9 GW of solar photovoltaic projects in 2011, worth an estimated $10.8 billion. The gigawatt capacity purchased was up 122% over the previous year, according to new research published by Bloomberg New Energy Finance (BNEF).

The report examined 221 mergers and acquisition (M&A) deals from 2006 to 2011, and found that Italy was the most active market for transactions involving operating assets in 2011, with 540 MW purchased. By contrast, the top five individual deals in megawatt terms took place in the U.S., all involving assets under construction rather than operating solar parks.

The surge in PV project acquisition activity was driven by attempts by governments in many European countries to slow down the hectic pace of solar development, coinciding with natural market consolidation as entrepreneurial developers sell to long-term asset holders, BNEF says.

With fewer opportunities to start PV projects from scratch, utilities and infrastructure funds have opted to buy already-permitted or already-operating projects instead. The financial crisis has also made banks and equity investors more risk-averse, preferring to buy operating assets rather than take on construction risk.

‘The boom in solar PV in Spain and Italy, driven by unsustainable feed-in tariffs, left a pool of assets generating very attractive cashflows, and still owned by developers, manufacturers and contractors,’ explains Michael Liebreich, CEO of BNEF. ‘These firms have a high cost of capital, and many would prefer to recycle what funds they have into new projects.

‘They are selling to longer-term investors with a lower cost of capital, who are happy with returns of between 5 percent and 15 percent, depending on the country concerned, over 20 to 25 years,’ Liebreich says. ‘PV projects can be a very attractive product for this type of investor, at the right price.’

Some 2.8 GW of the 3.9 GW acquired in 2011 consisted of projects that either were completed and generating power for the grid or that were under construction at the time of purchase. The remaining 1.1 GW of projects were permitted but not yet under construction.

Among the large solar assets changing hands last year were three operating Italian portfolios developed by Terna totaling 242 MW, and First Solar's 550 MW Desert Sunlight Solar Farm in California.

The valuations placed by purchasers on PV projects have fallen by around 44% from their peak in 2008, at the height of the Spanish solar boom. According to BNEF, global average sale values declined from a peak of 6.4 million euros/MW in that year to 3.6 million euros/MW in 2011.

‘This reflected two influences,’ notes Pietro Radoia, solar analyst at BNEF and co-author of the report. ‘First, the subsidies for the average operating plant have become less generous, and therefore, the potential revenues are reduced. Second, the financial crisis has pushed up the cost of debt and equity.’

The average price of a solar PV module worldwide has fallen by three quarters since 2008, including a drop of nearly 50% last year alone. This has resulted from fierce competition in the solar manufacturing chain, particularly from Asia, and improving technology.

The result has been to reduce the levelized cost of PV-generated electricity by more than 30% in 2011 alone, according to BNEF.

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