Wind Power Project Valuations Soften as Investors and Developers Show Caution

The valuations placed on wind energy assets slipped in 2009, according to an authoritative annual report published this week by Bloomberg New Energy Finance, the leading analysis firm in clean energy and carbon markets. The report, Portfolio Hunters III: focus on the acquisition and valuation of wind power assets, shows that asset divestment programs by some developers and a risk-averse attitude by potential buyers led to a modest fall in the valuations placed on commissioned wind farms, and a bigger fall in the value of assets under development.

Bloomberg New Energy Finance’s figures, based on its world-leading database of clean energy transactions, show that in 2009, the average prices paid for commissioned wind assets fell slightly to EUR 1.66m/MW. Under-development assets showed a much larger, 30% decrease year-on-year to EUR 130,000/MW.

Michael Liebreich, chief executive of Bloomberg New Energy Finance, said: “More difficult economic times continue to have an impact on the clean energy sector. This deep dive analysis of wind transactions shows that the price of operating projects has held up very well over the past year, but that projects in the planning and construction stages are trading at a noticeably increased discount. Buyers are being more cautious, doing more due diligence and marking down all but the best projects. On the plus side, wind continues to mature as an asset class, and we are starting to seeing it attract the attention of a wider range of investors.”

Global average wind asset pricing peaked at EUR 1.75m/MW in mid-2008, according to Bloomberg New Energy Finance data. The limited availability and higher cost of debt affected both demand and pricing of wind assets in 2009.

The value of commissioned assets are protected by feed-in tariffs or long-term power purchase agreements, so the brunt of this was borne by under-development assets – wind farm projects going through the planning, permitting and financing stages. The outlook for pricing is not likely to change in the short term as risk aversion and asset divestments continue throughout 2010.

The Portfolio Hunters III report is based on approximately 750 acquisition deals in the period 2001-09, of which 253 closed last year. There have been 265 deals over those years with disclosed pricing and portfolio information, which we used to derive pricing benchmarks by the deal’s stage of development and target geography.

Nearly 70% of disclosed deals were in euros and therefore we have decided to present all benchmarks – other than the US, Canada and Asian markets – in that currency. Deals in other currencies were converted to euros at the exchange rate of the closing day of each deal. The main conclusions of this analysis are as follows:

* Average pricing in all markets decreased in 2009 with the largest reductions in Italy (-10%) and France (-12.5%). The main exception was Ireland which displayed a 15% increase in pricing in 2009 to EUR 2.15m/MW, driven by an acquisition for EUR 550m by Bord Gais of an Irish developer with 180 MW of operating assets and 460 MW under development.

* Margins for sellers decreased significantly. In 2009, they fell in the range 15%-28% (as a proportion of the total valuation) while margins reported in 2008 were 28%-38%. The main reason for this reduction was the increased installation cost of the acquired portfolios, while at the same time final pricing decreased slightly, thus squeezing margins for sellers.

* Assets under development showed the sharpest reduction in pricing: fully permitted projects fell from EUR 185,000/MW in 2008 to EUR 130,000/MW in 2009, a decrease of 30%. Markets with exposure to electricity prices or policy frameworks subject to uncertainty experienced the largest decrease: for example Poland, Italy, US and Brazil.

* There was a further diversification of activity in 2009 towards emerging markets with sound policy frameworks, including China (6 GW), Australia (2.4 GW), Canada (1.9 GW), Sweden (850 MW) and Brazil (812 MW). Activity in the offshore sector reached 9.4 GW in 2008-09, some 12% of total traded capacity. The strategy of acquirers is to target markets with high future growth rates.

* Investment funds will become a major driver of acquisition activity in the future – especially targeting operating assets. These players are expected to close further asset purchases in 2010 as they search for secure yields at a time of low interest rates and economic weakness.

* We expect asset pricing to stabilize around current levels as divestments by cash-strapped developers continue in 2010, and probably 2011, and the financing markets remain tight. We thus expect average pricing for commissioned assets to stabilize around EUR 1.65m/MW in the short term, while average pricing for permitted assets is expected to be around EUR 140,000/MW. The decreasing quality of available sites – especially in Europe – is also expected to put downward pressure on assets under development in the future.

The Portfolio Hunters III report (30 pages) is available to New Energy Finance Wind Insight Service subscribers in hard copy only.