Sellers must be savvy in the secondary market


February 27, 2015

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You’ll have seen in today’s news that EDF’s renewable energy arm is making its first foray into South American wind. It is buying a majority stake in an 800MW portfolio from Latin American wind specialist Sowitec.

It is always interesting to see a high-profile utility make a big splash in a new market, but this time we are more interested on the effect this has on countries with more established wind markets — and, in particular, on the secondary markets in these countries.

If utilities and developers want to expand in new markets they need working capital, and one way to quickly raise it is to sell operational projects in established countries. This is driving the growth of secondary wind markets in Europe and North America. On paper, the thinking is good — and it sounds relatively straightforward too.

But, as the number of projects being offered to investors on the secondary market increases, utilities and developers will need to become more savvy about how they sell these projects.

In short, the secondary sell isn’t as simple as it sounds as there is no shortage of projects or investors.

Indeed, in the last week, two funds have told us there is a large number of projects to invest in. First, Greencoat Capital in the annual results for its UK wind fund said that it expected to see a “significant number of further investment opportunities” over the next year and that it would have to “invest selectively”.

And second, The Renewables Infrastructure Group said in its annual results that it has a “healthy pipeline of projects available across its target markets”. That “healthy pipeline” is competition for all those utilities and developers who want to offload assets; and they can be sure that potential buyers will carry about tough due diligence before completing a deal.

The message for would-be sellers is clear: potential buyers have no shortage of options. If sellers want to sell their assets for the best prices then they need to be aware of this. Pitch an asset right and a good asset will move fast at a good price.

But pitch it wrong and the project — or, worse still, a portfolio of projects — will struggle to sell and get stuck in a vicious circle as potential buyers question why it hasn’t sold already.

For companies that want to free up working capital to invest in emerging markets it is not good enough to enter the project sale process without a clear, compelling proposition. If you want to see how investors are becoming more savvy then look at Greencoat and TRIG. They are being very selective, not splashing the cash.

Utilities and developers must take time to really understand what they’re selling, recognise key investment drivers, and be selective about who they target. It isn’t simply a matter of putting a project up for sale and watching it go.

This targeted approach is more effort, but it’s also vital for those who want to make sales in a crowded marketplace.

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