Venture capitalists eye UK renewables

30 Oct 2012 | 11:08 am | 2 min. read

Venture capitalists are increasingly shunning Europe in favour of UK renewable energy investments, according to new figures which shed light on how the UK's renewable energy ambitions are being paid for.

According to data compiled by Preqin, the leading provider of intelligence on alternative investments, and analysed by Pinsent Masons, the international law firm, the value of venture capital-backed deals in the UK renewable energy market has doubled during 2012.

Figures from Preqin indicate that the volume of UK-based VC-backed renewable energy deals is on track to break last year's record, while the average value of deals has doubled from US$7mn in 2011 to US$14m in 2012.

Additionally, private equity investors are continuing to show interest in the UK renewables market while appetite for deals in continental Europe has dipped – despite a clear commitment from countries like Germany to clean technology in the wake of the Fukushima disaster.

The number of funds targeted at investment in UK clean technology assets and which have reached financial close is up on 2011, while fewer funds targeted primarily at investment in European assets have closed compared to the previous year.

The news comes ahead of a major renewables conference – RenewableUK 2012 - taking place in Glasgow on Monday.

Ian McCarlie, a Partner in the Energy team at international law firm Pinsent Masons, says:

"Access to finance is a concern within the sector. Last year the talk was of private equity 'war chest' existing for investment in renewables and clean tech, and to some extent that has been borne out. 2011 proved a record year with seven PE-backed buyout deals worth almost US$1bn closing in the UK. We also saw a lot of activity from unlisted infrastructure funds which completed more deals for UK assets in 2011 than in the previous two years combined."

"However, that was almost certainly a high water mark. There has been a retrenchment, and we're instead seeing VC being equally as active as in the previous year in terms of deals, but paying more on average to get into the game.

'Safe Haven'

McCarlie says that turmoil in the eurozone has led to UK renewables becoming a 'safer haven' for investors.

Says McCarlie, "It may be that the UK is gaining something of a 'safer haven' status. However, increased regulatory uncertainty and market reform could easily deter investors who will deploy their capital to other markets – capital can easily travel."

The UK draft Energy Bill proposes replacing the Rewnewable Obligation from 2017 with a new system of feed-in tariffs with contracts for difference (FiT CfDs) which will offer producers of low carbon power a fixed price for energy supplied to the National Grid. Payments will be made with reference to a technology-dependent 'strike price' and a market reference price.

Says McCarlie, "We need to remember that this is a global competition. Yes, the UK may retain attractiveness comparative to Europe, but investors also have the option to look at projects with significant scale in Asia Pacific, Africa and the Middle East. We can't afford to rest on our laurels."

Historical Private Equity Fundraising - Renewable Energy-Focused Funds Investing in the UK and Continental Europe

Year Closed

No. of Funds

Aggregate Capital Raised (EUR mn)

2005

1

20

2006

2

359

2007

6

2770

2008

3

1496

2009

1

2

2010

6

2011

2011

6

1361

Jan - August 2012

3

89

 

Historical Private Equity Fundraising - Renewable Energy-Focused Funds Investing Primarily in the UK

Year Closed

No. of Funds

Aggregate Capital Raised (EUR mn)

2005

1

20

2006

1

56

2007

2

61

2009

1

2

2010

2

25

2011

1

61

Jan - August 2012

2

89

 

 

Number and Aggregate Value of UK-based PE-backed Renewable Energy Buyout Deals: 2006 - 2012 YTD (as at 08.08.2012)

 

 

 

Period

No. of Deals

Aggregate Deal Value ($mn)

2006

2

0

2007

4

17.8

2008

3

14.8

2009

5

0

2010

3

0.75

2011

7

981.0

2012 YTD

1

117.5

 

 

Number and Aggregate Value of UK-based VC-backed Renewable Energy Venture Deals: 2006 - 2012 YTD (as at 08.08.2012)

 

 

 

Period

No. of Deals

Aggregate Deal Value ($mn)

2006

3

15.0

2007

8

124.7

2008

10

66.9

2009

14

92.5

2010

22

114.6

2011

23

162.2

2012 YTD

19

267.3

YTD = 8 August 2012

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