European renewables ECM activity rises amidst green energy push

05 February 2021 - 01:55 pm UTC

by Gustav Sandstrom, Sofia Cerqueira, Pablo Mayo Cerqueiro and Patrick Harris

  • Capital Energy, Ecoener, Opdenergy, NextEnergy on IPO watchlist 
  • FY20 European sector ECM values up 50% on year – Dealogic 
  • Current valuations could be stretched – sector watchers

Equity issuance in the European renewable energy segment is on the rise as lawmakers in the region push for more electricity generation from green sources and market participants zone in on Environmental, Social and Governance (ESG) oriented investment opportunities.


According to Dealogic data, ECM transactions involving European companies which primarily focus on renewable energy sources such as solar, wind and biomass, increased to 20 deals for a combined value of EUR 1.67bn in 4Q20 from eight deals worth a total of EUR 1.31bn a year earlier. Dealogic and Acuris are both parts of ION Group.





Helped by deals including the London IPO of sustainable investment firm Ecofin US Renewables Infrastructure Trust [LON:RNEW], a cap hike by Norway-based solar power producer Scatec Solar [SCATC:OSL] and a “green” convertible bond from French renewable energy company Neoen [EPA:NEOEN], combined European renewable ECM values rose 50% year-on-year in 2020 to EUR 3.97bn, according to Dealogic. This compares to a 24% rise globally to EUR 12.1bn. 


Activity looks set to continue apace. As reported last week by this news service, Spain is tipped for a flurry of renewables IPOs, with sector players such as Capital EnergyEcoener and Opdenergy deemed potential near-term candidates. Meanwhile, Norwegian renewable energy investment company Aker Horizons is going public in Oslo, while green investment firm NextEnergy Renewables is planning a London float. 


“There will be more IPO activity across the sector, probably within the more established areas of wind and solar at first, with others more niche to follow further down the track,” said an ECM banker, pointing to tidal energy as a promising area yet to be cracked. “Recent activity shows investors are increasingly willing to support very early-stage projects,” he noted.


The expected uptick comes amidst political ambitions to boost green energy generation. For example, the EU has promoted renewable energy to help limit global warming, and national governments such as Germany are fostering renewable power production in order to limit greenhouse gas emissions. 


“The energy transition is a policy transition - the trends of 2021 will be driven as much by government choices and actions as by private capital,” said Charles Lesser, partner at cleantech advisory firm Apricum. Sector activity would benefit by increased clarity from lawmakers, he suggested, adding that uncertainty over policy is currently holding back projects in some areas such as carbon capture, utilisation and storage (CCUS).  


While Renewables still make up a small proportion of total European ECM activity, the segment’s importance has increased steadily over recent years, according to Dealogic data. Disregarding the jump in 2016 thanks to the mega-IPO of German energy company Innogy – subsequently acquired by E.ON [ETR:EOAN] – the sector’s upswing has been remarkably stable both in absolute numbers and as a share of overall ECM deal values. 

Some market watchers believe the surging sector fundraise activity might be unsustainable. In Spain, the rapid expansion of solar and wind power could lead to energy oversupply in coming years, putting pressure on prices, a local fund manager cautioned. Large energy groups like Repsol [BME:REP] have so far stayed away from M&A in the space, potentially because they see less value than financial investors do at current multiples, he suggested.


Among recently listed Spanish renewables firms, Soltec [BME:SOL] is up 92% since going public in October, while Grenergy [BME:GRE] has surged since its 2015 float, adding 114% in the past 12 months alone against a 17% drop in the IBEX 35 index of the country’s most traded stocks. 


Meanwhile, countries like the UK are so short of listed “energy transition” assets that demand currently outweighs supply, Lesser said. “Valuations are exaggerated and companies will be tempted to IPO too early,” he cautioned. “The pre-conditions for excess are there.” 


Still, the trend looks intact so far, helped by market participants’ growing ESG focus. As reported, investors are setting aside significant amounts for ESG oriented opportunities, and renewable energy companies which can earmark proceeds for “green” projects can often be a natural fit for that pool of funding. 


“2020 was a disrupting year in terms of ESG,” said Eric Arnould, Global Head of Equity Capital Markets at Natixis. All issuers now have to think of a reading of their equity story from a separate ESG lens,” he argued.