The boom in renewables multiplies the interest of foreign investors


Javier González NavarroJavier González Navarro

MADRID

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The energy transition imposed by the European Union became one of the main objectives of the Government of Pedro Sánchez. However, the crisis caused by the pandemic is turning this transformation into an engine of economic recovery, since Spain has a large renewable energy industry also present on all continents.

The National Integrated Energy and Climate Plan 2021-2030 (Pniec) prepared by the Executive, one of the most ambitious in the EU, foresees that the modernization process towards a decarbonized economy will mobilize some 236,000 million euros between 2021 and 2030. 80% of these investments will be made by the private sector and the remaining 20% ​​will be investments by the different public administrations.

One of the main vectors of this plan is the promotion of renewable energies in the next decade. By 2030, a total installed capacity in the electricity sector of 157 gigawatts (GW) – currently 109 GW – is expected, of which 50 GW will be wind energy (now almost 27 GW), 37 GW solar photovoltaic (10 GW) and 7 GW solar thermoelectric (2.3 GW).

This transition is being accelerated by the need to boost economic recovery and by the EU aid plan, which reaches 140,000 million euros. For now, the Government has already included 26,640 million “on account” in the 2021 Budgets to accelerate the ecological transition and promote green investment.

Lower costs

All this is generating another boom in the renewables sector in our country that is causing enormous interest from international investors. For this, three issues have a significant influence: the recovery of legal security in the sector that was greatly diminished in recent legislatures, the enormous liquidity in the markets and the great reduction in costs, especially photovoltaics. On the contrary, it continues to penalize slow administrative processes.

The partner and director of the Herbert Smith Freehills Energy and Infrastructure practice, Ignacio Paz, highlights that investment in renewables is experiencing “a real boom. Not only in the development of projects, but also in the purchase of parks in operation by foreign investors. They call us very often to understand the regulation, which is complex, and ask about opportunities.

Alberto Martín, partner in charge of Energy and Natural Resources at KPMG in Spain, affirms that “the renewable sector in Spain is generating enormous interest among international investors, which are entering both the purchase of assets in operation and construction projects for new production capacity. Our country is highly attractive, both for its good renewable resource conditions (sun and wind) and the availability of sites, as well as for the sector’s ambitious growth plans by 2030 ».

Alliances and partners

Ignacio Paz explains that «what many foreign investors are looking for is create great platforms to continue investingor. What they don’t have are human teams capable of managing assets. They are looking for a large portfolio of projects and a human team capable of making it grow. There are many funds that are looking for these opportunities in Spain. Alliances will be seen. For example, a large Spanish utility can bring in a minority partner that will give it financial muscle to continue investing in projects that, at the same time, allow it to consolidate the results of its business.

This may be the case of Repsol, which plans to enter a financial partner in its renewables business, valued at between 3,000 and € 4 billion. Another possibility that the group is considering is taking part of this business public.

“The developments are riskier, but it is where the most profitability exists. If they are looking for double digit returns“You have to focus more on developing projects than buying projects in operation,” says Herbert Smith partner Freehills.

And he explains that “while traditional electricity companies continue with their model of development of large projects, especially in more innovative technologies, such as hydrogen, floating offshore wind, etc … the funds seek opportunities in more traditional technologies, on assets than electricity companies they can rotate and sometimes even on assets developed by developers that are not always the large electricity companies, although that yes, almost always with all the permits already obtained to build (“Ready to build”). It depends on the profile of each fund because there are others who do not want to assume construction risk and enter projects that are already operational and generate “cash”. Along the way there are all kinds of investors (European, American, Canadian, Asian and Australian) and risk profiles.

The KPMG partner adds that the profile of international investors “is very varied, from large power companies and companies specializing in renewables to investment funds and oil companies interested in participating in the energy transition.”

The coat of arms of Parliament

Regarding legal security in this sector, Ignacio Paz emphasizes that «we work with many investors in our office and, regardless of their nationality, the reality is that at this moment they are all clearly betting on Spain as one of their priority jurisdictions in matters renewable. The fact that the new regulation has its origin in a norm with the force of law, would force that, in the event that it wanted to change, a new law had to be approved in Parliament. And actually, All political groups in Spain are committed to the ecological transition and, very in particular, by renewable energies ».

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