UK renewable projects saw 5 to 10 years of extraordinary subsidy-driven growth. This was matched by the emergence of a number of specialist infrastructure funds who built impressive portfolios using long term equity finance and then bank debt. There was then something of a lull in new activity as the same funds moved to consolidate the few projects remaining in independent ownership.

The new wave of subsidy-free project development in the UK has been well-documented. One thing that has become clear to us at MDS Advisory is how the range of funding sources has diversified. In recent months we have acted in significant transactions involving community finance, overseas inbound capital from North America and Europe and balance sheet funding from major corporates in the energy sector who are seeking to replace traditional generating capacity and other income streams with new renewable and flexible assets.

The resulting competition between funders is welcome news for developers, not least because much of the expected finance will essentially be in the form of equity and will match better with the merchant or quasi-merchant risks that arise in a post-subsidy environment. The extent to which banks will shift their risk profile to accept such merchant risks when offering direct funding to the same projects remains to be seen.

The trend to watch, as we currently see it, is in the corporate sector. The volume of highly efficient generating capacity that now needs to be replaced with renewables (solar PV load factors are only 3 – 4% in mid-winter in the UK so less efficient meaning more capacity per KWh generated at key times) is massive. With their ongoing access to sufficient funding on attractive terms, the major corporates (including the oil majors and what was once referred to as “the Big Six” utility companies) will become important players in the renewable generation sector. As we see development pipelines transition to construction and operation phases, a healthy level of development and transaction activity lies ahead in the years to come.