Wednesday, January 1, 2014

Solar, Wind Farms Changing Hands at Record Rate

It seems each week we read that another wind or solar farm has been sold, and it turns out there's a reason for that -

Struggling utilities don't want them, but pension funds do.

In fact, renewable energy plants are changing hands at record rates, reports Bloomberg. They comprise 43% of the 275 deals in the power industry for the first nine months of the year (up from 37% last year), according to Ernst & Young. That adds up to $104 billion in value.

Pension funds want the consistent yields renewable energy plants offer - about 6% for wind and solar, says Bloomberg. In Europe, utilities are selling plants to reduce debt and build up cash in the face of falling revenues and competition from a new generation of independent generators. Corporations and homeowners have become power generators thanks to long-standing feed-in tariffs.

This explains why Bloomberg New Energy Finance data shows  that worldwide investments in renewable energy is declining. They dropped 11% last year from a peak of $317 billion in 2011, and are expected to also decline this year. Over the past five years, European utilities spent about 10% of the global total.

Operating renewable energy plants are a boon for institutional investors, however, because the returns are much higher than bonds, and since they are backed by 20-year contracts to sell the energy at premium rates, they are also quite safe.

"A solar power project with a long-term sales agreement could be viewed as a machine that generates revenue," Marty Klepper, an attorney at Skadden Arps Slate Meagher & Flom LLP, told Bloomberg. "It's an attractive investment for any firm, not just those in energy."


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