Renewable energy investors may see a decrease in returns in 2019, due to sustained demand for renewable energy projects and a higher interest rate environment. Given the current state of the wind and solar sectors, developers are unlikely to be able to place sufficient pressure on the supply chain to offset this. 

These are some of the key findings of the U.S. Renewables M&A: 2018 Review and Outlook for 2019 report from the Global Clean Energy practice at FTI Consulting. 

According to the report, a combination of increased demand and the higher interest rate environment could put project returns under pressure. 

Typically, project owners would look to secure more favorable terms with EPC and O&M contractors in order to offset this. However, with the US wind industry keen to implement projects before PTC placed-in-service deadlines, and the solar ITC stepping down after 2019, there is limited room for compromise on costs within the supply chain, as developers rush to construct projects and procure equipment. 

Other approaches to preserve returns could include seeking to enter into PPAs with offtakers which offer more competitive pricing. However, these counterparties may also represent a higher level of risk.

Chris Post, a Managing Director in the Global Clean Energy Practice at FTI Consulting, said, "Strong demand and a higher interest rate environment could lead to a compression of returns in the wind and solar sectors, with limited options for cost reduction. Construction equipment and contractors are in high demand, leaving project owners with little room for negotiation."

"Nevertheless, the high level of demand from investors, local and international, means there is good reason to be confident about the pace of M&A in 2019." 

Other findings from FTI Consulting's U.S. Renewables M&A report included:

• In addition to projects, development platforms and teams with strong track records will continue to be sought after.

• Oil and gas majors will continue to diversify into renewables and gain a foothold in the sector as clean energy becomes increasingly competitive. 

• International buyers will continue to make significant moves into the sector, attracted by the abundant supply of assets with favorable relative return profiles.

Chris Post will be speaking about the solar M&A market in 2019 at the Infocast Solar Power Finance and Investment Summit, which will take place March 21 in San Diego, CA. 

FTI Consulting | www.fticonsulting.com/clean-energy