Corporate Financing Analysis - Private Sector Taking Up Renewables Fundraising Slack - 03 JULY 2017

With governments in a number of mature renewables markets busy scaling back policy support for the renewable energy sector owing to rising concerns about the associated costs of facilitating its expansion and the difficulties of integrating greater volumes of intermittent power output (such as wind and solar) into electricity grids, there is growing pressure on the private sector to take up the slack and drive growth in the sector. This creates plenty of opportunity in the renewables space for early movers, especially as this pushback at the national level will lead to a rise in the implementation of local-level policies to encourage growth in renewable energy deployment as some local governments and stakeholders remain largely in favour of renewable energy despite the less supportive centralised government policies. Acutely aware of this emerging trend, energy-focused alternative investment funds have been on the rise.

2016 A Turning Point

According to data from Preqin for H117 to date, unlisted natural resources fundraising focused on renewable energy has outstripped fundraising for conventional energy for the first time on record. Furthermore, this shift looks set to be a sign of a long-term change in the status quo, with renewable-focused funds currently in the market being greater in number as well as looking to raise more capital than their conventional energy-focused peers, a fundraising market trend that we see as indicative of the broader-based growth of the renewables industry globally. This marks a turnaround from the last decade, a period that saw conventional energy-focused funds account for 46% of all energy capital raised, surpassing the capital secured by renewables-focused funds (as low as 21%) and those vehicles that take a mixed approach (33%). However, from the close of 2015 onwards - a record full-year period for conventional energy fundraising - we have seen a shift in strategy, with the volume and value of fund closes slowing significantly. Indeed, Preqin data show that across the first four months of 2017 only six funds have secured a combined USD1.9bn to invest, which is a long way below the USD22.3bn raised by 22 funds across the 2016 full-year period. At the same time, the fortunes of renewables funds have been heading in the opposite direction altogether, with fundraising staying level across the course of 2016 (USD12.6bn raised by 26 funds) before accelerating to see nine funds successfully raise a combined USD4.8bn across the first four months of 2017. We highlight that investors' preference for renewables-focused funds is also reflected in the current fundraising climate, with a further 73 renewables-focused funds in the market targeting as much as USD35.0bn collectively, compared to the 52 funds targeting USD29.0bn in fresh investment to deploy in conventional energy.

A Strengthening Sector
Global - Annual Unlisted Renewable Energy Fundraising By Deal Value, USDbn
Note: ytd = correct to end of April. Source: Preqin, BMI

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