Analysis of the Week: $1.53mn/MW Peak Valuation: Analyzing the Optimal Exit Strategy for Operating Onshore Wind Projects in the US, Since 2020

published on 29 June 2024

Assets Operating for 1 - 5 years Trade at $1.35 - 1.53mn/MW, After Which Valuations Drop to $1 - 1.1mn/MW, Going as Low as $0.8mn/MW for 10+ year-old Wind Farms

20 - 40% Value Drop Post 5 Years: Recent Deals in ERCOT Emphasize this Trend, Highlighting the Impact of PTCs and Declining Turbine Efficiencies

A 2022 research paper cited a Texas study that analyzed performance declines in onshore wind farms, observing that they were largely flat during the first few years of operation, following which they accelerated across the remainder of the projects' economic age, which is currently ~15 years. This is evident in the estimated valuation differential between InfraRed's acquisition in May'24 ($1.35mn/MW | operating age: 4.5 yrs) and ITOCHU's purchase in Jun'24 ($1.03mn/MW | operating age: 9.5 yrs). Since the wind farms had reputed equipment suppliers (GE/Vestas), the differential can be attributed primarily to the remaining PTCs, declining output (estimated at ~1.6% per year) and increasing O&M costs, which account for up to 20% of the LCOE

Enerdatics Observes that PE Capital Accounted for ~60% of the Exits from Mature Wind Farms in the US, since 2020

Our data reveals that PE firms and their portfolio companies represented majority of the divestment activity for wind farms with an operating age of 5+ years, which is when less than 50% of the PTC term is remaining. Recent examples of this trend include BlackRock's $110mn exit from a 9.5 year-old portfolio to Itochu, TIAA-funded Capistrano Wind Partners' $450mn sale of 12 year-old assets to Clearway Energy (CWEN) and Ardian-backed Skyline Renewables' $50mn disposal of a 14 year-old wind farm to Ecofin's REIT. Meanwhile, InfraRed Capital Partners, which recently partnered with Savion on a 360 MW operating portfolio, stated that a key growth lever for its North American business is the yield enhancement that PTCs offer

The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.

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