Capitalists are Storming the Gates

While talking to investors, a good chunk of our time has always been dedicated to dispelling a number of clean tech myths that continue to keep prospects from embracing the clean energy megatrend.  Chief among these myths is the belief that renewable energy projects are only made possible by massive government subsidy schemes or by environmentalists that are seeking social returns ahead of capital returns.  Like the tired old workhorse put out to pasture at the end of its productive years, it is time to retire the fable about the lack of economics in renewable energy projects.

How can we make such a statement?  The incontrovertible proof is in the markets.  Over the last twelve months there has been a sea change in the availability of renewable project financing with the emergence of renewable power master limited partnerships (MLPs), real estate investment trust (REITs), YieldCos and other funding vehicles.   And the investor appetite for these vehicles has been voracious.  Since the beginning of 2013, there have been three such companies that have had initial public offerings that now trade at a combined enterprise value approaching $4 billion.  All of these companies provide debt financing in some form for solar, wind and energy efficiency infrastructure projects.  A number of other solar companies and traditional utilities are currently either planning or actively considering public offerings of YieldCos.  The largest rooftop solar installer in the US has even been able to complete the industry’s first securitization of rooftop solar assets, with demand so great that the yield was pushed below 5%.
The massive increase in the depth and liquidity of the capital pool dedicated to renewable energy projects has dramatically lowered the financing costs of these projects.  This lower cost of capital coupled with the continued decline in installed costs from technological advances has increased the amount of energy produced per panel (or wind turbine) while decreasing the manufacturing costs for each panel (or turbine). This dynamic has led to a surge in renewable energy project development in North America. For example, over the past 18 months, more solar was installed in the U.S. than in the past 30 years (Solar Energy Industries Association, GTM Research – 2014).

A key element of the investment process behind Essex’s Global Environmental Opportunities Strategy (“GEOS”) is the identification of the tipping point when a clean technology makes economic sense and is on the cusp of mass adoption.   The landscape for renewable energy projects, solar in particular, has shifted; capitalism is now dictating the growth of the renewable energy segment.  It is how it should be and is a fantastic and game changing development.