WIND

German developers become hot M&A targets

Germany led Europe for new wind installations in 2023 and permitting is becoming easier too. This is translating into interest in buyouts of German renewable energy developers, including KKR’s €2.8bn takeover of Encavis and the acquisition by Octopus of a 50% stake in Lintas.

RICHARD HEAP

March 19, 2024

  • KKR last week confirmed a €2.8bn takeover of Encavis
  • Octopus Energy agreed to buy 50% of newcomer Lintas
  • Germany led Europe for wind farm completions in 2023

 

Germany’s onshore wind industry has faced some dark days in the last seven years. But the market’s nadir in 2019 now feels like a long time ago.

Yes, 2019. Before the world locked down due to Covid-19 in 2020. Before the invasion of Ukraine by Russia in 2022 that threw energy markets into turmoil. In fact, Germany’s weakest year for onshore wind installations during the last decade happened in 2019, two years after after the country introduced competitive tenders in 2017.

These tenders drove down the returns that developers could make from new onshore wind projects and, as a result, wind installations in Germany dropped sharply.

Onshore wind farms totalling 5.3GW were completed in 2017 as firms raced to complete schemes under the old regime, but this slumped to 2.4GW in 2018 and 1.1GW in 2019. Growth remained slow for a couple of years – but has now picked up with 2.4GW completed in 2022 and 3.6GW in 2023.

This made Germany the leading country in Europe for wind installations last year according to WindEurope, ahead of the Netherlands and Sweden. This growth is likely to continue as it has become easier to secure the permits for onshore wind projects, with WindEurope reporting that onshore wind projects of 7.5GW were permitted in Germany in 2023. This is up 70% year-on-year and is essential to unlocking future developments in the country.

The growth trajectory is positive in Germany’s solar market too. The country’s solar industry grew fast between 2008 and 2013 until the government cut subsidies, which sent annual installations tumbling from 8.2GW in 2012 to 1.2GW in 2013. But the sector has since recovered, with installations rising every year for the last decade reaching more than 14GW in 2023.

There are still difficulties in the market. Investment is needed in the German transmission grid to ensure it can cope with these rises in renewable energy generation, and the government continues to face a public backlash over its energy policies. Even so, the country is a key driver of renewables activity in Europe, and we are starting to see this translate into corporate merger and acquisition (M&A) deals for German wind and solar developers.

 

Engaged buyers

Last week, private equity group Kohlberg Kravis Roberts (KKR) launched its €2.8bn takeover bid for German wind and solar developer Encavis, which has 3.6GW of renewables capacity. KKR is leading the acquisition of Encavis in a consortium that includes co-investor Viessmann, and the group has agreed to buy a 31% share in Encavis from investment group Abacon Capital.

Christoph Husmann, chief financial officer at Encavis, said the extra financial support would enable the company to “take our business to the next level to compete with the largest European players”.

And KKR’s Vincent Policard said the transaction would help Encavis take advantage of “emerging opportunities and solidify its strength in the clean energy landscape”. We can only conclude that this potential is linked to the improved prospects for wind and solar developers in Germany.

We have seen other similar takeovers.

On Friday, Octopus Energy Generation announced it is buying a 50% stake in little-known developer Lintas Green Energy, which was set up in 2022. Lintas has more than 20 projects in the states of Bavaria, Hesse and Saxony-Anholt, and is growing its portfolio. It will be able to do more of this with Octopus backing.

This is the first corporate M&A deal that Octopus has concluded in the German renewables market, which it entered in June 2022. As Alex Brierley, co-head of Octopus Energy Generation’s fund management arm said: “We’re proud to be able to help the country speed up this transition by backing green projects and developers that are driving a cleaner, cheaper future.”

This underlines the appeal to utilities and institutional investors of buying not only individual assets, but development platforms with the skills to progress additional schemes. The fragmented German onshore wind market, with its host of smaller developers, lends itself to such consolidation via corporate M&A deals.

Another recent deal is the buyout of operator Quadra Energy by French oil giant Total Energies, which was approved by European Union regulators in January 2024.

And last week, news emerged that Swiss investor Partners Group is looking to take advantage of this M&A interest with a potential sale of VSB Group, which it bought in 2020. Partners could name financial advisors soon and start a sale process by the end of June, to raise around $2bn.

Of course, there’s only so far we can generalise about corporate M&A deals. Each transaction is unique. But we expect more buyouts of German wind and solar developers in the next two years as more firms seek to increase their exposure to a market that is, once again, one of Europe’s brightest.