Home / Publications / Emerging Europe M&A Report 2020/2021 / Renewable energy: Drive to go green boosts investment...

Renewable energy: Drive to go green boosts investment in clean energy

While some industries have suffered a freeze in transactions over the past year, renewable energy has remained a hotspot for dealmakers. The long-term trend towards clean electricity and increased flexibility on incentives and contracts have made it more attractive than ever to investors.

The forces driving the shift to renewable energy gathered momentum in 2020. The Covid-19 pandemic gave a reminder of the need to protect future generations against the threat from climate change and highlighted the role the green economy can play in recovering from the economic crisis.

Like the rest of the world, emerging Europe is working out how best to make the transition from fossil fuels and embrace low carbon alternatives. The drivers for change are coming from international agreements and regulations, filtered through national frameworks, and market forces as technological developments and consumer demand make renewables increasingly competitive.

An attractive market

Although the experience of each country varies, emerging Europe is increasingly being seen as a region ripe for investment in renewables. Lukasz Szatkowski, [CMS Partner Poland], notes: “We need to change our energy mix along with the rest of the world and the private sector is driving investment.

Many countries in the region are already rich in hydro-power, which is dominated by big utilities. For mid-sized investors and the specialist arms of the big infrastructure funds, wind, solar and biomass offer opportunities to take part in the transition from fossil fuels, reducing reliance on coal and providing security against disruption to imported gas supplies.

Biomass projects tend to be smaller, while wind and solar vary from individual turbines and rooftop panels to huge wind farms and solar arrays. Further down the line, developments in hydrogen technology are likely to open up another avenue for investors in renewables.

Lukasz Szatkowski says: “The different size range of wind and solar investment opportunities leads to a diverse investment offer that is available to both leading international funds and institutionals, as well as small- and medium-size investors.

Incentives, taxes and PPAs

The early uptake of renewables—across Europe—relied heavily on often generous state incentives through feed-in-tariffs which led to market distortions. Governments’ attempts to claw back payments created turbulence that left investors wary.

That caution is receding as markets evolve and grow more sophisticated. Feed-in-tariffs are still used, but alongside them contracts for difference auctions have emerged as a way of increasing competition and removing uncertainty. Power purchase agreements (PPAs) between generators and customers are becoming more widely used, providing stability and predictability for both sides.

Lukasz Szatkowski points out: “Investors used to markets such as the UK or Spain would find that many countries in Central and Eastern Europe now have a support scheme that they would recognise and be comfortable with. Over time, we expect support schemes will become less important to investors.

Data centre operators in particular have been making use of PPAs. As a fast growing and energy intensive sector, it needs reliable and cost-effective electricity supplies. For individual companies, renewables also help to fulfil environmental and social responsibility commitments. PPAs are also becoming more widely used by consumer goods suppliers, wholesalers and retailers.

Lukasz Szatkowski says: “Data centres are good examples of big potential electricity users who are interested in having their own independent supplies and using corporate PPAs. Not only does the independence give them some security over supplies, the contracts protect them from fluctuations in energy prices.

Advances in turbine and photovoltaic technologies have brought down generating costs and intensified competition between wind and solar. But their rollout, particularly in locations remote from end users, relies on continuing investment in transmission and distribution systems.

The scale of the opportunities in Poland alone is huge. Warsaw has set out ambitious plans in various energy areas, including offshore wind and backed up by draft regulations, to develop 28GW of wind power by 2050, making it the largest offshore operator in the Baltic Sea.

Keeping dealmakers busy

There has been a flurry of activity in the sector, with more expected. Interest has come from investors in the region, close neighbours such as Austria and Italy, and as far away as Korea and Australia. Buyers have included corporates such as Solarian Holdings of South Korea, which bought a 5MW solar plant in Bulgaria, general private equity funds, and specialist infra- and green-investment funds, such as Macquarie’s Green Investment Group of Australia, which bought a 25MW onshore windfarm in western Poland.

Poland’s state-run PKN Orlen last year set out a strategy to develop renewables at the same time as it expanded through the planned takeover of rivals Lotos and PGNiG. The industry is watching closely to see if this will result in the divestment of some assets.

The UK’s Aberdeen Standard Investments is an example of a fund that sees exciting prospects in the region. Already a leading solar investor in Poland, in 2020 it added a 40MW portfolio from Green Genius and a 122MW portfolio from R.Power.

Green Source of Austria agreed a EUR 66m investment in eight solar plants in Hungary, while MET Group of Switzerland bought a 42MW wind park in Bulgaria.

One of those to see opportunities in the region is Enery Development of Austria, which bought six Czech solar plants with 21MW capacity and two Slovakian sites with 4MW from Czech fund Green Horizon Renewables. Another 2020 deal for Enery was the purchase of the largest solar park in Bulgaria, a 60MW site close to Plovdiv.

Lukasz Szatkowski says: “Investors’ interest is growing. I believe renewables are going to play a big part in the economy of emerging Europe and they will have leading role in M&A activity for the next three-to-five years.

A green recovery will rely on the accelerating shift to a low carbon and sustainable economy, from reducing pollution to water conservation, and from building smart homes to smart cities. Renewable energy will be at the heart of this transition and that has not gone unnoticed by investors.

Key contact

Łukasz Szatkowski
T +48 22 520 84 69
Previous 10 / 10 Next