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Seller's market for wind assets persists

The market to acquire wind generation remains robust, whether for development assets or legacy projects, with contracts or without, according to deal-makers at the American Wind Energy Association's annual Wind Energy Finance & Investment conference in New York City on Oct. 1-2.

"There is a lot of liquidity and strong demand, both on the development side and the operating side," said Frank Nicklaus, principal at Greentech Capital Advisors, citing the recently agreed sale of Noble Environmental Power LLC's 612-MW operating wind portfolio in New York state as an example.

Carlyle Group LP announced it would acquire the wind assets in September, marking the first wind investment for the Washington, D.C.-based private equity firm. Carlyle owns upward of 6,000 MW of generation assets, including gas-fired plants and hydro facilities.

Repowerings

"A lot of the folks that looked at that portfolio were looking at it as a potential repowering," said Nicklaus, whose firm ran the sale process for Noble, adding that he was "pleasantly surprised" by the great interest shown in the platform. "Those assets were about 10 years old, had rolled off the [production tax credits] and were actually merchant."

Nicklaus said big strategic investors are expected to be among those looking to acquire projects ripe for repowering as the passage of time produces more "legacy" wind projects, though Christopher Pih, managing director at Bank of America Merrill Lynch, said private equity firms may be more equipped to tackle the risk associated with a repowering.

"If you have higher risk, whether it's repowering, or re-contracting, or a bit of hair, then you start to tap into more of the private equity-like kind of infrastructure players who are interested in those types of assets," Pih said.

However, panelists at the conference left little doubt that the wind M&A market is active across the board.

Live sales include utility-owned portfolios from sellers trying to drum-up low-cost cash, recycle capital or otherwise find ways to up their balance sheet as well as assets from developers who see the frothy M&A market as the perfect opportunity to put projects on the block, Pih said.

Low risk, high demand

"It continues to be a seller's market," said Nicklaus, pointing out that competition is fierce for contracted, de-risked assets.

"You have to be prepared to be pretty aggressive and be able to move quickly and minimize execution risk," Nicklaus added. "Alternatively, if you are seeking higher returns, it means moving off the risk curve in some respect," including taking on additional development risk or investing in assets with "operating challenges," including merchant exposure.

Pension funds, including those in Europe, show continued interest in renewables, especially low-risk or de-risked assets, Pih said. East-Asian investors and sovereign wealth funds from various countries are also remaining active in the U.S. renewables space.

Foreign strategics, including European companies, are "willing to pay up" for assets that would allow them to tap a certain geographic market or that would otherwise fit in with a broader corporate strategy, Pih said. For some companies, a renewable platform can be a way to enter the U.S. power space.

Mega-deals are rare

Competition for wind assets is greatest in the $75 to $125 million range, according to Nicklaus, who said there are fewer potential buyers competing for mega-deals.

"If you look at some of these large yieldco portfolios, like [TerraForm Power Inc.], for example, or NRG Yield, now [Clearway Energy Inc.], it's not by accident that funds like [Global Infrastructure Partners] and [Brookfield Renewable Power Inc.] have been the successful buyers there, because they're the ones that can step up and write billion-dollar checks," Nicklaus said.

TerraForm, originally a yield company of the ill-fated SunEdison Inc., was acquired by Brookfield in 2017, and the company is not planning to invest in merchant wind projects, according to CEO John Stinebaugh, who was also on the M&A panel.

"That doesn't really fit TerraForm's portfolio," said Stinebaugh, who is also a managing partner of infrastructure at Brookfield, adding that the company does not want to significantly change its risk profile, though it is willing to acquire hedged wind projects. "We look at hedged projects. I think because we own and operate projects with hedges, we are pretty acutely familiar with the risks of hedged projects, so we would diligence them and really make sure the hedge is structured properly."

Despite the recurring theme of the aging legacy projects, there continues to be demand for development-stage assets.

"There's fairly robust demand for pipeline," and while development assets that have yet to secure power purchase agreements are unlikely to be valued as highly as contracted projects, they could attract buyers who may want to expand their fleet in a particular geography, Nicklaus said.

"There's a pretty good size group of buyers out there for all of those things," he added. "How long this cycle lasts remains to be seen."