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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