SPACs Will Have a Tough Time Cleaning Up on Renewables
October 21 2020 - 07:29AM
Dow Jones News
By Jinjoo Lee
Investor appetite for sustainable investments and yield have
both been huge lately, but there have hardly been any debuts of
cash-generating renewable-energy companies recently. Could SPACs,
or special purpose acquisition companies, be the answer?
Of course it is possible to gain indirect exposure through a
utility with heavy renewables exposure such as NextEra Energy,
which recently surpassed Exxon Mobil in market capitalization.
NextEra was the top developer of wind energy in 2019. But the
second and fourth largest -- Invenergy and Apex Clean Energy,
respectively -- are privately owned. Large solar developers such as
8minute Solar Energy, too, are private.
A burgeoning group of clean energy-chasing SPACs is aiming to
change that. At least four filed since August are specifically
targeting the renewable energy industry, according to a recent note
by Trevor Pinkerton, partner at Norton Rose Fulbright. An even
larger universe of SPACs -- 16 by Mr. Pinkerton's count -- are
casting a wider net, looking for companies that help promote energy
transition. At least one prominent renewable developer is eyeing a
public market debut. Tom Buttgenbach, chief executive of 8minute
Solar Energy, told The Wall Street Journal in August he is
considering at least a partial public debut to take advantage of
the growing interest in sustainable investments.
Experience shows it hasn't been easy. The last time renewable
energy companies went public in droves was in the 2013-2015 period
in the form of yieldcos, so named because they promised attractive
dividends from operating already-developed wind and solar
facilities. One solar developer, SunEdison, went bankrupt after
failing to deliver on its untenable growth promises with sister
yieldco TerraForm Power, souring the market for other yieldcos.
Pattern Energy Group and 8point3 Energy Partners have been delisted
and taken private, while others, including Clearway Energy, have
sold off large pieces to private capital.
A handful remain publicly listed -- including Clearway Energy,
NextEra Energy Partners LP and Brookfield Renewable Partners -- and
have managed to outperform the S&P 500 year to date.
Aside from the SunEdison debacle, there are other reasons why
public markets haven't been as appealing for the industry. One is
that there is no shortage of private capital -- especially pension
fund money -- chasing relatively low-yielding renewable energy
investments. Many have increased their allocation for alternative
investments in recent years. Public markets, meanwhile, tend to
favor rapid growth stories or splashy scale -- not features of
existing renewable developers or operators. Judging by green bonds'
relatively modest pricing advantage compared with plain vanilla
bonds, investors don't seem to be overly generous on valuation just
because investments are cleaner.
Compared with oil and gas, there is also less of a direct
incentive for going public. Tax-advantaged master limited
partnerships, for example, are available only to those generating
income from natural resources such as oil and natural gas or
commodities. A House infrastructure bill that passed this summer
proposes to expand that eligibility to include renewable energy.
There is a good chance of that bill becoming law if Joe Biden
becomes president and the Senate turns majority Democrat.
In the current market, SPACs are mostly trying to buy companies
with "hockey stick-shaped" business plans," according to Ted
Brandt, Chief Executive Officer of Marathon Capital. It advised
battery-operated truck company Hyliion Inc. on its combination with
Tortoise Acquisition Corp. Mr. Brandt noted that likely targets
include energy storage companies, renewable-related software,
renewable natural gas or companies in the business of financing
rooftop solar.
SPACs are more likely to find targets in those adjacent areas,
bypassing the safe, boring green projects favored by yieldcos or
pension funds. Because they have incentives to close a deal, SPACs
tend to keep their mandates broad enough to be realistic. ArcLight
Clean Transition Corp., a SPAC that filed a prospectus in late
September, is clearly focused on finding a renewable
energy-generating target. However, the company is also open to
energy storage, the distributed electrical grid, zero-emission
transportation, carbon capture and even sustainable manufacturing,
among others.
It will take a lot more than hungry SPACs to lure
renewable-energy companies back to the public markets.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
(END) Dow Jones Newswires
October 21, 2020 07:14 ET (11:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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