Quarterly analysis of M&A Activity for Solar, Solar-plus-Storage and Standalone Storage Assets in the US
Camelot Energy Group
Bespoke technical and strategic advisory for a better world
Amid one of the longest periods of macroeconomic headwinds for US’s renewable energy space, including high interest rates and persistent supply chain challenges, M&A activity for solar, solar-plus-storage and standalone storage assets continues to showcase healthy growth. While historically standalone solar projects dominated investor interest, the market is now experiencing a notable increase in acquisitions of battery energy storage systems (BESS), and solar-plus-storage. Additionally, deals for community solar installations overtook those for utility-scale projects for the first time in Q1 2024. This analysis delves into the major M&A-centric trends currently shaping the solar and storage sectors in the country, courtesy of Enerdatics , and provides insights into the most important technical aspects underlying the deals, courtesy of Camelot Energy Group .
CAISO Sees 2 GW+ of Deals Primarily for Solar + Storage Assets
Enerdatics’ data shows that the CAISO region, which covers the majority of California and some parts of Arizona and Nevada, witnessed five large portfolio-scale deals primarily in the Southern part of the state. The acquired assets had a wide range of nameplate capacities, varying between 80 MW and 300 MW. The majority of the facilities had 10 - 20 year PPAs with utilities including Southern California Edison (SCE) , NV Energy and San José Clean Energy . AXIUM INFRASTRUCTURE NA IV LP 's acquisition of the ~400 MW Edwards Sanborn solar + storage project in Kern County, from Terra-Gen, LLC in Jan’24 marks the largest asset-level transaction in California’s renewables space this year.
Camelot Energy Group notes that the heavy development stems from a number of attractive financial considerations. As shown in the map above, solar + storage projects are prevalent in the Southern California region. While the PPA market continues to be active, there has been a decline in contract volume in recent years, as potential buyers get more comfortable with merchant revenues. When projects enter the merchant market, the primary sources of revenue in the California ISO include Energy Revenues, Capacity Payments, and Ancillary Services Revenues. Among these, Energy Revenues form the most substantial portion, reflecting the potential for solar projects in high-resource areas to generate low-cost electricity, which co-located BESS can then leverage to participate in energy arbitrage trading.
There is one significant concern which buyers should be aware of in the CAISO market: assessment of real Resource Adequacy (RA) revenue potential. The RA metric, critical for ensuring there is sufficient capacity to meet peak demands, is evolving. As more solar is added, the contribution of standalone solar to RA values diminishes because of the saturation of non-dispatchable energy on the grid. This may lead to a future where solar alone accounts for little to no RA revenues. This shift, combined with the phasing out of older thermal plants and Investment Tax Credit (ITC) incentives, underscores the growing need for projects that integrate solar with extended-duration storage to enhance system reliability and financial returns. For some time, hybrid systems have dominated CAISO interconnection queues and the value proposition is shifting towards more substantial storage components in these projects.
ERCOT sees significant M&A activity for development assets, including a rise in storage opportunities
The ERCOT power market, which covers majority of the counties in Texas, accounted for nearly 20% of the acquisitions for utility-scale solar projects. The region witnessed 4 major transactions primarily in the ERCOT North and South zones, totalling nearly 1 GW of operating and under-development assets. Vast swathes of developable acreage and low land costs have rendered large projects (200 MW+ in size) as the optimum deal targets. The majority of the acquired facilities sold power under 10 - 15 year PPAs with investment grade utilities and corporate off-takers, such as tech firms and industrial players. However, large fluctuations in the price of power on the spot market make the acquisition of merchant solar + storage projects, or standalone storage projects, attractive as well, and Advanced Power 's sale of the 240 MW Oriana Solar + Storage project in ERCOT South to Sabanci Renewables showcased this.
In the Standalone Storage space, the ERCOT market continued to dominate with more ~1.5 GW of deals in the past two quarters. The deal targets were majorly 100 - 200 MW early-to-late-stage development portfolios participating in the highly lucrative arbitrage market. SMT Energy 's 400 MW sale to UBS Asset Management stood out for the transaction size, while Balanced Rock Power 's divestment of the 450 MW/900 MWh Evelyn Battery Storage Project to GridStor marks one of the largest single asset transactions in the region. Aside from these large projects, the market also remains active with 9.9 MW energy storage projects (such as those noted in the linked article, below), driven by streamlined interconnection processes for projects with < 10 MW nameplate capacity. These can make an attractive bite-sized investment for firms more active in the community scale project space who wish to participate in the ERCOT energy storage market, but do not have the appetite for the larger assets.
Based on Camelot’s experience with utility scale BESS and hybrid projects in ERCOT, ancillary services make the majority of an optimal revenue stack. Ancillary service prices often strongly correlate with energy prices, usually peaking during periods of congestion and extreme weather, but fetching higher returns than traditional energy market trading. Owners of such assets stand to benefit greatly from ancillary services, as the chart below indicates for a hypothetical co-located BESS site of different sizes. Economic outcomes in ERCOT, however, are highly dependent on specific interconnection location (i.e., nodes) and this needs to be examined carefully before investing in a project. Not every node in Texas is lucrative for energy and ancillary service market participation and a few miles’ distance can make a big difference when evaluating optimum project locations.
For a deeper dive into a new development in ERCOT’s ancillary services market in ERCOT, see Camelot Energy Group’s post on the topic, below.
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Increased Solar M&A activity seen in PJM
The PJM Market, which saw muted activity for solar assets in the first two quarters of last year, witnessed 800 MW of deals primarily in Ohio. Enbridge 's acquisition of a 50% stake in the ~600 MW Fox Squirrel solar Project from EDF Renewables North America marked the largest deal in the region, since the start of 2023. The project is in the late stages of development and has a 20-year fixed-price PPA with 亚马逊 , for 100% of its output. Camelot notes that the demand from companies committed to reducing their carbon footprints has bolstered development in the region. Long-term power purchase agreements provide stable revenue streams, reinforcing the financial viability of solar investments. Ohio and other states within the PJM area have also adopted ambitious renewable energy targets, driving many investments into new solar projects.
Despite these opportunities, Camelot cautions that interconnection processes within PJM have proven challenging for many developers. Investors in development-stage projects should pay particular attention to seller compliance with PJM interconnection rules, as there is little flexibility in meeting interconnection agreement milestones. Some developers are making creative use of interconnection “suspension” rules to extend development timelines but this increases uncertainty about final interconnection costs and timelines that some investors may not have an appetite for.
Acquisitions of Community Solar Projects Surged by 140% Quarter-on-Quarter in Q1 2024, Overtaking M&A Activity for Utility-Scale projects for the First Time
Enerdatics' analysis of the US renewable market in Q1 2024 reveals a clear surge in M&A activity for sub utility-scale solar projects, such as commercial & industrial (C&I) and community solar installations.
In the community solar space, acquisition interest gravitated primarily towards projects in NYISO, which represented more than 50% of the deals during the past two quarters. Scale Microgrids , Standard Solar , Nautilus Solar Energy, LLC and Luminace continued to be active in the space, while Hannon Armstrong Sustainable Infrastructure LP marked its entry into this high growth segment with a massive 600 MW purchase from The AES Corporation . A notable shift that we observe is the sharply increasing deal sizes – with 2023 witnessing three 100 MW+ deals across the year, while Q1 2024 saw two 500 MW+ deals. Hannon Armstong’s 600 MW deal targeted 200 operational projects across 11 US states, of which more than 30% were co-located with energy storage facilities. The produced power is contracted to a diverse group of investment-grade corporate, utility, and municipal off-takers, with a weighted average remaining contractual life of 16 years. Additionally, Scale Microgrids' 500 MW acquisition of projects across New York and California marked the second largest deal in the space, during the period. Cumulatively, the community solar segment represented 1.5 GW+ of deals during the last two quarters.
The heightened interest in community solar investments can be attributed to a number of different incentives. A few of the key incentives include:
Community solar projects are also becoming increasingly attractive due to their simplified interconnection processes, which are facilitated by their smaller scale. They also offer more predictable revenue streams through pre-agreed agreements with the communities they serve and experience lower transmission losses due to their proximity to these communities. Given these advantages, we anticipate a growing trend where traditional commercial and industrial (C&I) solar developers will expand their portfolios to include community solar projects, thereby broadening their market presence and capitalizing on the lucrative opportunities presented by the evolving policy landscape.
The solar C&I segment, which is dominated by companies including Standard Solar, Sol Systems , Onyx Renewables , CleanCapital , and Altus Power, Inc. , saw deal volume diversified across markets in Northeastern US, including ISO – NE, NYISO and PJM, as well as Indiana in MISO. Deal targets were balanced between smaller, sub-30 MW portfolios and larger 80 – 100 MW aggregations, in line with trends observed in previous quarters. Altus Power’s 121 MW purchase of behind-the-meter solar projects in North and South Carolina emerged as the largest solar C&I deal in the last two quarters, bringing the total transacted capacity to ~350 MW.
Conclusion
Enerdatics and Camelot Energy Group forecast a sustained high level of M&A activity in both the solar-plus-storage and standalone storage sectors in upcoming quarters. Investors, primarily private equity firms, are expected to aggressively pursue development-stage projects in areas of high renewables penetration, with significant value accretion expected due to rising demand for power from corporate off-takers, and because of the increasingly lucrative markets for energy and ancillary services in several regions.
Additionally, community solar projects are anticipated to claim an increasing proportion of solar M&A transactions. With several major utilities across the US now offering their own community energy subscription plans, large international IPPs and the smaller regional players are expected to compete to establish their footprint in this high-growth space.
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