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Foreign investors flock to Spain's booming renewables market

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A worker at a solar plant in Spain's Albacete province. International investors are pumping money into the country's renewables sector.
Source: Pablo Blazquez Dominguez / Stringer / Getty Images News via Getty Images

Spain has become the hottest ticket in town for international investors in renewable energy, with the government's green policies and a favorable power market helping to spark overseas interest.

Industrial and energy conglomerate Acciona SA cashed in on the strong appetite this month with a €1.5 billion IPO for its renewable energy subsidiary. The stock has gained more than 13% since the listing, which allocated more than 85% of shares to investors outside of Spain.

International buyers also supported Grupo Ecoener SA's IPO in May and a €105 million share increase by Grenergy Renovables SA in March, while Solarpack Corporacion Tecnologica SA and Naturgy Energy Group SA have both been approached by foreign bidders.

More takeovers and IPOs may follow, potentially including the listing of oil company Repsol SA's green energy arm, as investors tap into a sector benefiting from a thriving market for corporate supply deals, high power prices and a fast rebound in power demand following the coronavirus pandemic.

"It looks like a dream scenario for investors," Jose Ruiz, an analyst at Barclays, said in an interview. "It's exactly the right moment."

Spain wants to generate 74% of power from renewables by 2030 and recently launched a new wave of large-scale subsidy auctions to entice developers to take advantage of the nation's wide-open geography and its abundant solar and wind resources.

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'Big shift'

Better equity returns for renewables in Spain, along with the sector's relatively good performance during the COVID-19 pandemic, are helping to pull in overseas investors, said Axel Narváez, managing director at financial advisory firm Augusta & Co.

"We can see a big shift in infrastructure funds and asset management companies toward renewables. And Spain is leading the renewables space in Europe," Narváez said in an interview.

U.K. pension fund Universities Superannuation Scheme Ltd. already agreed to buy 50% of solar developer Bruc Energy SLU for €225 million. Swedish private equity firm EQT AB launched a takeover offer for solar power producer Solarpack for about €880 million last month, while Australian investment fund IFM Investors Pty Ltd. wants to buy close to 23% of Naturgy for €5 billion.

Narváez expects more corporate deals to follow as developers look for strong financial partners to realize their growth plans. "It means the Spanish market is getting broader," he said.

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'You can't just let it slip by'

To be sure, a wider market correction in renewables stocks this year has put a damper on the Spanish rally.

Acciona's highly anticipated listing came in smaller than expected, while Ecoener raised only half the roughly €200 million it had initially targeted. Two other Spanish renewable energy companies, Opdenergy Holding SA and Capital Energy SA, have put off their IPOs to wait out the slump.

Acknowledging that Ecoener's timing was not ideal, Founder and CEO Luis de Valdivia said he expects the repricing to be permanent as investors look for opportunities in other promising sectors. In the meantime, companies should take advantage of the global momentum for decarbonization.

"There is a boom in renewables right now," de Valdivia said in an interview. "You can't just let it slip by."

Barclays' Ruiz said Acciona's listing likely diminished interest in some of the smaller IPOs and expects that the companies will eventually launch another attempt. Opdenergy declined to comment for this article and Capital Energy could not be reached for comment.

In neighboring Portugal, which shares some of the favorable characteristics of the Spanish market, biomass power producer Greenvolt - Energias Renováveis SA listed on July 13.

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Many international investors sued after Spain retroactively cut subsidies following the financial crisis.
Source: Pablo Blazquez Dominguez / Stringer / Getty Images News via Getty Images

"Spain and Portugal are very attractive" for renewables development, said Fernando Garcia, director of European utilities research at RBC Capital Markets. "[But] in order to invest, you have to go to the markets. That probably explains why everything is happening this year."

'You have to be careful'

For all the enthusiasm in the Spanish market, many are still mindful of the government cuts that put an end to the last green boom in the country.

The intervention, which saw the government retroactively cut renewable energy tariffs after the financial crisis, led to a wave of lawsuits from investors under international investment treaties.

"It really cleaned us out," Ecoener's de Valdivia said of the subsidy revisions. "That means you cut back your expectations."

Spain's unstable regulatory environment is now encouraging local companies to spread their bets more widely. Ecoener is planning projects overseas, from South America to the Balkans, in addition to power plant developments in Spain. It already operates a hydroelectric plant in Guatemala and a solar park in Honduras.

Spain recently proposed to claw back profits from nuclear plants, as well as some older hydro and wind installations, which the government says benefited from power prices inflated by carbon costs. Last year, Madrid also put a moratorium on new applications for grid connections to crack down on rampant speculation for wind and solar permits. A new system put in place this month will see grid points offered in regular tenders instead.

"It's a huge opportunity in this market, but you have to be careful," Ruiz said.