With a round segle and from London and Gerard Reed from Berlin.
This is redefining energy.
Minutes today on relief an amg Jaz's not there, so I'm going to talk about wind because jads literally zero interesting wind, but WIN. It is a big market. If you consider Europe alone, We've got two hundred and seventy giga awad of winds that is valued five billion euros. So this is a lot of kid And in order to talk about wind, I brought a friend and one of the great specialists of the sector, brilliant m and
a banker. Probably you'll hear more British than the Queen, although it's originally chairman Martimaer means Martimer, welcome to the show.
Thank you very much. It's great to be I'm a great fan of the show.
I brought you to talk about WIN because you are arranging a lot of transaction. That's what you've been doing for quite some time. And I guess the topic today is going to be the new value of wind assets because a lot of things have changed post COVID in relation to supply chain, the type of operation interest rates. Probably start by describing what you are doing and what you've done recently, Thank you, Lament.
So we we're a specialist financial advisor in renewables and we've been doing it since two thousand and two, so
ready for a very long time. And to give you some data, we've done roughly twenty billion euros of equity placed across one hundred and sixty transactions, and that's about forty gigawatts of renewable assets, about five billion heroes of debt placed on top of that, and that has been predominantly in wind in all European markets because that's where the bigger transactions were, that's where the utility scale transactions
were and where the money was going. So we have a lot of experience and have seen this market developed from right at the beginning in the early two thousands to where it is today. We've had a lot of changes and you've covered them very well and in great detail
on your podcast in the past. You know, interest rates up five hundred basis points in eighteen months, COVID over quantitative easing, over inflation up, inflation down again a little bit, continuing supply chain problems because of COVID and also because of inflation. Of course, the Ukraine War causing what is now mostly called the energy crisis. You know, Russian gas replaced effectively in Europe by US LNG. This has had
significant impact in our little world. You can see in the public markets equity market valuations down roughly thirty percent. I know you've covered that yield co is trading, you know, fifteen to thirty percent below their net asset value. You've also covered that fundraising down substantially. I was looking at some data earlier today. You know, forty percent down for
infrastructure fundraising from twenty two to twenty three. That's a big drop when you will energy down to twenty twenty levels in twenty twenty three, both in deal value and deal count. So this has all been a pretty big impact in our space. And if you if you just focus away from a little bit you move away from the finance bubble into what's been happening in renewables to understand where we are now.
Wow, whoa whoa Martina search a gloom. But the interesting is a lot of the gloom. You're talking about, this bit of a macro gloom. On the top of that, the industry has not really helped itself by certain suppliers having specific problems because you know the macro environment, we're interest rate Russia. Hopefully at some point things will give back to normal, but there's been also some inherent issues.
Look two more minutes on problems, and then after we talk about the future, because otherwise this is a positive podcast. Where are we heading?
It's not as bad as it looks. The effect of all these macro events has not been as big as you might expect because of the growth and the success of renewables. Renewables has been so successful, there has been such a large build out. We have now got more molatility on the system. We have a changed environment. But if you look at specifically what you're interested in, long on the valuations, how is all this affected valuations in
wind in Europe? Investors need more return. If the interest rates go up five hundred basis points and you compare that to the risk free rate, which let's call it for argument's sake, the US Treasury. Look at US treasuries which were at five percent for most of the last eighteen months. You need to increase your return. You can't buy renubal energy assets that traditionally have yielded an IRR after fees of around six percent so something had to move.
Investors needed more return. That return has to come from somewhere. It has come effectively from the developers. If you look at where ready to build assets trade, they have reduced in value. So if you're selling a wind farm in any European country there are two possible exceptions that in Germany and France. In most European countries, ready to build values are down. That is because these investors that are driving investment into those assets need more return, so they
are paying less for these assets. You have not seen the same and operating asset Operating asset values stable throughout. Investor returns obviously up a little bit, not that dramatically. And if we look at all that, then what that looks like to us is a normalization of renewable energy values across Europe. It's a reversion to the norm mm.
So that's it. It's the end of the gloom. This is a good time to enter the market.
You would say it is if you look at the top of the developer premium paid in the European wind energy asset that was probably some time around the middle of twenty twenty one, early to middle twenty one, before we started worrying about the Ukraine warm before its et cetera, et cetera. At that stage, you had record low capics, you had subsidy regimes just ending, and you had very low interest rates. So you had this perfect situation for people to invest and spend money and build, and the
developer premium were very high. If you look at your average wind farm, there are four basic counterparties, equity investor and the debt. There's the developer, and then there is the OEM. Now the debt always makes the same amount of money. The equity investors had to make a bit more. OEMs have increased their cost. That's inflation related. So the person who's been squeezed the most is the developer, but
they're still making very good money. In Germany and France, I would argue that the d has been very minor for wind. In other countries a bit more. It is a bit more difficult to do deals. But there is more capital than ever into the space. There are more investors than ever, there are more strategics. One interesting thing you've seen is the strategics. Now with the financial investors needing more return, the strategics are actually becoming more competitive.
So you're seeing many more strategics in auctions, which are very safe investors. When you're selling an asset, it's good to sell to strategics because they tend to a know what they're doing, understand valuation, and be very good at operating these things. So the market is more complex, but it is definitely still very active. There are lots of deals getting done. You need a good advisor, you need good experts helping you through this. There is a lot
going on. And also we haven't spoken about power prices yet, but there has also been a normalization again of power prices, which we consider a good thing coming off the energy crisis.
Did you see the same actors in on shore and offshore or these are really two different marksts.
They are largely two different markets because of the scale of offshorees. Offshore, it's been a stop start market. We were very active at the beginning of it. Back in the twenty tens. We sold twenty four different offshore projects for our clients, our developer clients, and I did most of those myself. At the time, those were selling permitted assets into the market for a certain value, which we
helped establish. Now they are little shareholdings in very large, already built assets which are obviously trading for much higher valuations. And also you are bringing investors into the chance to participate in an auction, which we have done quite a lot of recently on our continuing to do so. That market has changed. You had a combination to succeed nowadays of a financial investor, a large strategic really put together
to win an offshore auction. It's a very different game in the auction world, of course than it was before, so different investors.
But you would say on shore you still love dozens of potential investors.
Yeah, truly global capital market level on which it wasn't when you and I started in this space. We had to fight to get attention with the utility and with a financial investor. It was very difficult convince them of the risks that I would say in the first ten years of the industry, people worrying about the equipment, will it fall over, will the turbines work? You know, icing issues, gearboxing, but how it hot. We argued about gearboxes, permanent magnet
versus geared, all this kind of stuff. In the next ten years of the industry, but on the third decade, but in the second decade, it was about power pricing. You know, where is your power price expectation, how much risk you take on power price? How good is your PPA, how long is your PPH. Now I would argue we're in a third place. Energy transition comes into this very strongly. We're very active in that area. But now co location storage,
private market, merchant transactions. It's just a lot more complex. But there's more money than there's ever been.
And what about the Chinese. Are the Chinese coming?
We have worked with Chinese in the past, We've sold projects to Chinese OEMs. We would welcome them back into the market. They used to be very active buyers. They have gone away for the last few years. We hope they come back because it's great to have them in the market. We see those turbines re establish themselves slowly but surely, and we hope they come back.
And of course, now the big market is the all of hippo oring issue, because a lot of those good sites which were developed twenty years ago but probably with one Mega what turbines or two Mega what turbines and all have access to five six Mega what turbines. So is that happening or not?
That's definitely happening. We're seeing a growing repowering market across Europe. The country where we have done the most transactions in repowering is Germany and we see that as continuing. It has a very easy to understand and industry friendly framework
for repowering. There are also less planning issues with turning thirty turbines into five that I've a fifty meter higher hub height and longer blade length, etc. You would expect that to be a bit easier in Germany than in other countries, but it's coming in Spain, it's coming in other markets we're looking at We were waiting for that market for a decade and a half long. I'm happy
to say it's now really here. There's a whole host of transactions and investors are keenly looking at it because the benefits are huge, because you tend to be repowering the first wind sites, which it's clearly the best in most countries.
Excellent Martimer. Overall, you're bullish for the next five years.
I'm very bullish. There's more money than ever. It requires more work, it's a little bit more difficult, but this whole situation is a lot easier than the financial crisis. Was, it's easier than COVID. We have a bit more complexity. We're in a merchant world, where in a world with storage, with co location, with interconnection, with demand growth, it is fascinating. We haven't spoken about battery technology and smart grids and dispatchable and that sort of thing, but you know, it's
much more complex. But renewables has been super successful. You and I have seen that happen to a certain extent with the victim of our own success in terms of volatility, but we can deal with that. There are emittigance to volatility. One of the biggest is demand. I mean demand is expected to grow very strongly, not just because of hydrogen, but because of AI electrification, interconnectors, etc. Etc. And that
is always very difficult to foresee. You know, you can count suppliesily, just count power stations, but actually forecast tingdom mark is really hard. And we're very bad at if. The old industry is bad at it. But it now looks like we've got a bit of a breakthrough happening. So we're very bullish. We're bullish on power prices, we're bullish on the buildouts, we're bullish on capital being available, and these projects make money. Your IRN Germany today, if
you invest in it is eight percent. You're IRON France is seven to nine percent. Your IRON the Nordics is higher. Your IRN Spain is significantly higher. These projects make money. This is a place to make money. And if you put that against some of the other investment opportunities investors have, this is still a really attractive space to.
Be Thank you so much. Great conclusion, we're bullish. Before we go for our listener, just know that I will be sharing a free seminar on the future of green energy procurement with KPMG and Ronoable, the award winning platform at a law firm called wed Leg Bail on Thursday the third of October at four pm in the City of London. It's free, but it's going to be super technical. I will put the link in the show note and hopefully we'll see you there.
Martimer, thank you so much, Thank you very much, great jop to you. Thank you for listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple, podcast, Spotify or the platform of your choice.