Renewable Energy Investment Banking: Riding the Wave or Facing Headwinds?

If any sector has generated more hype than technology or TMT, it might just be renewable energy investment banking. The good news is that for those who can secure a role in this space, the group offers several positives - diverse deal activity, a generalist technical skill set, and ample exit opportunities.

The bad news, however, is that despite these upsides, the renewable energy investment banking landscape remains highly dependent on government policy and overall macroeconomic conditions, despite claims to the contrary.

But before delving into the broader advantages and disadvantages of this field, it's important to first understand the various verticals and how banks structure their renewable energy-focused teams.

Understanding the Scope of Renewable Energy Investment Banking

Renewable energy investment banking encompasses advising companies across a wide range of verticals, including solar, wind, biofuels, energy storage, smart grid, electric vehicles, hydrogen, hydroelectric, and carbon capture.

This breadth means that the deals and technical skills required can resemble those found in various other sectors, such as oil & gas, power & utilities, technology, chemicals, or industrials.

Due to the difficulty in finding a unifying technical theme across these diverse verticals, banks have structured their renewable energy teams in different ways. Some classify them under "Natural Resources" groups , alongside chemicals, metals and mining, oil & gas, power, and infrastructure (e.g., Goldman Sachs). Others position them within Power & Utilities, Utilities & Renewables, or Power & Renewables teams (e.g., Barclays, Morgan Stanley, JPMorgan, Citi, Bank of America, RBC, Guggenheim, Lazard, Nomura).

Adding to the complexity, certain banks have created dedicated renewable energy-focused teams that operate separately from their existing power & utilities coverage, such as Citi's "Clean Energy Transition" (CET) team and Nomura Greentech.

Further compounding the categorization, some banks may place certain verticals, like batteries and electric vehicles, within their tech or industrials teams, arguing that these firms resemble semiconductor or traditional automotive companies more closely.

Additionally, many renewable energy debt deals are handled by Project Finance teams at banks, though the dynamics of project finance differ significantly from corporate finance.

The key takeaway is that aspiring renewable energy investment bankers must closely examine the specific deal flow and team structure of each bank, rather than assuming a one-size-fits-all approach across the industry.

Breaking into Renewable Energy Investment Banking

Given the broad yet non-specialized nature of the renewable energy sector, aspiring investment bankers can come from a wide range of backgrounds to enter this field.

While some knowledge of solar and wind assets, batteries, and other related technologies can be beneficial, it is not as critical as in more specialized sectors like real estate, mining, or oil & gas, where deep industry expertise can be a significant advantage.

As a result, candidates can successfully break into renewable energy investment banking straight out of undergrad, or they can transition in from various related groups if they are already working. The standard criteria still apply - strong academic credentials, attendance at a reputable university or business school, relevant finance internship experience, and a commitment to thorough networking and interview preparation.

In terms of the technical interview process, candidates should be prepared to demonstrate their understanding of:

• The fundamentals of solar and wind assets, as well as a general familiarity with other key verticals, such as biofuels and energy storage/batteries.
• A recent transaction in the renewable energy sector, ideally one where the target bank has acted as an advisor.
• Relevant operating metrics and valuation multiples, especially for the assets and companies that are the most distinct from traditional industries.

What Do You Do as an Analyst or Associate?

While the renewable energy sector encompasses a diverse range of technologies and verticals, the deal activity itself is not as diverse as one might expect.

According to FTI Consulting, solar, wind, and "portfolio" (mixed asset) transactions account for approximately 60% of renewable M&A activity in the U.S.:

In practice, much of this M&A work involves asset acquisitions, as the purchase of individual solar plants and wind farms is a common occurrence.

As a result, even when advising on entire companies, analysts and associates must be well-versed in asset-level modeling, valuation, and understanding how an entire portfolio of renewable assets functions.

For growth-stage renewable energy companies, equity offerings, including IPOs, SPACs, PIPEs, and follow-on issuances, make up a significant portion of the deal flow. However, these equity transactions are highly dependent on market conditions, leading to more uneven deal flow compared to asset-level M&A.

A prime example is the 2020-2021 period, when SPAC activity surged, and numerous renewable energy companies went public through this route. But the following year saw a market crash, and renewable energy SPAC deals all but disappeared.

Debt transactions also occur, but many are structured as Project Finance deals, which fall outside the primary responsibilities of the renewable energy investment banking team. The renewables group may still work on corporate-level debt deals, but these are less common than the asset-level transactions.

Overall, the day-to-day work of renewable energy investment banking analysts and associates requires a deep understanding of asset-level modeling and valuation, as well as the ability to navigate the ebbs and flows of the equity capital markets for this evolving sector.

Key Trends and Drivers Shaping the Renewable Energy Sector

The renewable energy sector is influenced by a diverse array of macro and micro factors, including:

1. Energy Demand: Rising global energy demand benefits the entire renewable energy sector, as countries seek new sources to meet this growing need. Factors like population growth in emerging markets and increasing demand from data centers, AI, and 5G contribute to this trend.
2. Commodity Prices: Higher oil and gas prices can encourage renewable development, but the relationship is complex. Renewables also rely on other commodities, like lithium, iron, copper, and nickel for batteries. If fossil fuel and industrial metal prices move in opposite directions, the impact on renewables becomes more challenging to predict.
3. Technological Advances: While solar panel and wind turbine costs have fallen over time due to manufacturing efficiencies, their productivity has not necessarily increased at the same pace?(i.e.,?they don’t generate much more electricity from the same number of panels or turbines ). The holy grail is to simultaneously achieve lower prices, improved productivity, and better storage options, but accomplishing all three simultaneously remains a significant challenge.
4. CapEx, OpEx, and Inflation: Renewable assets typically have high upfront capital expenditures but operate at very high margins afterward. As a result, they are sensitive to initial construction costs (materials, labor, and financing) but are less affected by long-term expense inflation compared to other sectors. Assets with lower operating margins, such as large offshore wind farms, and those with complex decommissioning requirements tend to be more exposed to rising expenses over time.
5. Interest Rates and Monetary Policy: Renewable energy assets, particularly those with high yields, benefit from low interest rates. When rates are near 0%, acquiring a wind farm with a 10% equity yield is quite attractive. However, this appeal diminishes as interest rates rise to 5% or 6%. Additionally, lower rates and looser monetary policy can reduce the total construction costs, including financing, which is a significant portion of the upfront capital expenditures for most renewable projects.
6. Government Policies, Taxes, and Regulations: Factors like government subsidies for electric vehicles, policies encouraging utility companies to source renewable energy, tax credit schemes, and the permitting process for new renewable assets can have a significant impact on the sector's development and viability.

Renewable Energy Overview by Vertical

In an effort to avoid turning this article into an exhaustive tome, I will now provide a concise summary of the key renewable energy verticals:

Solar

Representative public companies in the solar space include Canadian Solar, First Solar, JinkoSolar, SolarEdge, Sunrun, and Trina Solar, among others. The solar vertical can be broadly divided into manufacturing, development, and services companies.

Solar manufacturers, often based in China, resemble semiconductor or industrial firms but typically operate with lower margins and more intense competition. Key drivers for these companies include growth in global solar installations and the raw material/labor costs of their products.

Solar developers are more akin to power producers in the utilities sector, with the critical factors being the capital expenditures required to build new plants, the capacity of each facility, and the terms of the Power Purchase Agreements (PPAs), including contract length, electricity rates, and allowed rate increases.

Here’s an example operational snapshot:

When analyzing solar companies, you may not necessarily model each individual plant or site separately, but rather group them by similar regions or contract types, and then forecast the revenue, expenses, and financing costs for each cohort.

Finally, solar services companies, many of which focus on residential panel installations, are influenced by different macroeconomic drivers compared to manufacturers and developers. Some solar firms span multiple segments, so it's important to analyze each business line separately.

Wind

Key public companies in the wind energy space include Vestas, Siemens Gamesa, Nordex, ?rsted, and Xinjiang Goldwind, among others. Unlike the relatively fragmented solar sector, the wind vertical is dominated by a handful of large, diversified players that primarily manufacture wind turbines and related components.

Similar to solar, the wind sector can be broadly divided into manufacturing and development/generation companies. Wind turbine manufacturers resemble the dynamics of the solar panel makers, with critical factors being raw material and labor costs, demand for new wind farm installations, and overall market competition.

On the development and power generation side, the drivers mirror those seen in solar, but the risks, capital expenditures, and ongoing operating expenses are typically higher, particularly in the offshore wind segment. This is reflected in the higher valuation multiples observed for wind assets compared to solar:

One key distinction is the lack of a prominent "residential" wind installation market, given the sheer size of wind turbines. As a result, wind-focused services companies are less prevalent, with most turbine maintenance activities undertaken by separate divisions within the major manufacturers like Vestas, Siemens, and GE.

Overall, the wind energy vertical is characterized by fewer pure-play independent players, higher capital intensity, and more substantial operational and financial risks compared to the solar industry, despite sharing some fundamental drivers.

You’ll still see the same analysis of individual assets owned by companies, as shown below:

Biofuels and Renewable Natural Gas (RNG)

The biofuels and renewable natural gas sectors encompass a diverse range of public companies, which can be broadly divided into two categories:

1. Large agricultural and energy conglomerates that also happen to produce biofuels, such as Archer-Daniels-Midland, Chevron, and Valero.
2. Smaller, dedicated biofuels-focused companies, including Neste, Green Plains, and Verbio.

Within the dedicated biofuels companies, there is a further distinction between producers and transporters/midstream players, akin to the upstream-midstream split seen in the oil and gas industry.

For the transportation and logistics-oriented biofuels firms, key drivers include the company's overall capacity (pipelines, storage, terminals, etc.), the gathering and transportation fees charged, and the associated labor, service, and material costs per unit of fuel handled.

On the production side, these companies operate more like chemical manufacturers, with critical factors being the cost of raw biomass feedstock, the labor required for the transformation process, and the underlying customer demand, including any long-term supply contracts.

One common challenge in the biofuels sector is the tendency for companies to overestimate their production volumes and underestimate their costs, leading to missed targets and operational difficulties.

Renewable natural gas (RNG) represents a relatively newer entrant to the biofuels space, with the key appeal being its ability to leverage existing natural gas infrastructure, such as pipelines and storage assets. This has attracted interest from traditional energy companies like Chevron and BP, which see RNG as a way to decarbonize their operations while utilizing their existing asset base.

Storage and Batteries

The energy storage and battery sector features a diverse array of public companies, including BYD, CATL, LG Energy Solution, Panasonic, and Tesla, among others. This vertical has significant overlap with the electric vehicle (EV) industry, as many of these battery manufacturers also produce EVs.

The storage and battery space can be characterized as a hybrid between industrials and technology, as it requires substantial R&D investments to develop new materials and improve efficiency, while also heavily relying on large capital expenditures and raw material costs for production.

For the larger, more diversified players in this sector, key drivers resemble those of traditional industrial manufacturers, such as total market size, market share, and order backlog – metrics that companies like Emerson may use to justify strategic acquisitions, as seen in the case of the Open Systems deal:

Additionally, some consumer-focused battery and storage firms have incorporated a subscription-based business model, where customers pay monthly fees to manage their energy usage and storage.

The ability of these battery companies to buy or sell excess production to balance out their own EV manufacturing needs further highlights the interconnected nature of the storage and EV verticals within the broader renewable energy ecosystem.

Electric Vehicles (EVs)

The electric vehicle sector features a diverse range of public companies, including major legacy automakers like BMW, Volkswagen, and General Motors, as well as emerging EV-focused players like Tesla, BYD, and Li Auto. While EVs are not strictly part of the renewable energy industry, the dynamics of this vertical are distinct enough to warrant separate consideration.

Many of the prominent players in the EV space are Chinese companies, alongside the prominent U.S. presence of Tesla and the participation of global legacy automakers that have started to shift their focus towards electrification.

Before the rise of EVs, the traditional automotive market had experienced stagnation in many developed countries. The growth of the EV segment has created significant excitement, but it is essential to analyze it within the context of the overall vehicle market, considering factors such as replacement cycles, pricing, consumer sentiment, and incentives like tax credits.

In emerging markets, particularly in China, much of the EV growth is driven by new buyers rather than the replacement of traditional internal combustion engine vehicles. This dynamic requires a different approach compared to more mature, developed markets.

The EV sector is also highly dependent on the availability of supporting infrastructure, such as charging stations. If the necessary charging infrastructure is not in place, it can significantly hinder EV adoption.

Alongside the automakers, there is a diverse ecosystem of companies that provide parts, software, and hardware for the EV industry, which often operate more like technology firms but are still influenced by the same macroeconomic drivers affecting the overall EV market.

Diversified Renewable Companies and Other Areas

In addition to the key renewable energy verticals discussed previously, the sector also encompasses several other areas, such as carbon capture, energy efficiency, geothermal, hydropower, and water technology. However, it can be challenging to find dedicated public companies operating solely in these more niche segments.

One notable exception is the Chinese market, which has produced a few prominent players in specific areas, such as China Yangtze Power for hydropower. But overall, the global renewable energy landscape is dominated by larger, more diversified companies that operate across multiple verticals.

Representative examples of these diversified renewable energy firms include Iberdrola, NextEra Energy, Brookfield Renewable Partners, and GE Vernova. These companies have a presence in solar, wind, energy storage, batteries, biofuels, and other renewable technologies, requiring a more segmented approach to analysis in order to properly evaluate the performance of each business line.

While some may consider nuclear power to be a form of renewable energy due to its lack of carbon emissions, the debate around the sustainability and classification of nuclear remains a contentious one, so it is not addressed as a distinct vertical in this overview.

The diversity of the renewable energy sector, with its emerging and niche areas, highlights the need for analysts and investors to maintain a broad understanding of the landscape, while also being able to dive deep into the specific dynamics of the core verticals that currently command the majority of market activity and attention.

Renewable Energy Accounting, Valuation, and Financial Modeling

While the core valuation methodologies used in the renewable energy sector, such as EV/Revenue, EV/EBITDA, and P/E, are similar to other industries.

If you want a quick example, here’s a set of “solar service”?comparable companies :

There are some notable differences:

New Metrics and Slightly Different Multiples:

• In addition to?EBITDA and?EBIT , renewable energy companies may also be valued based on "Capacity" metrics for power producers.
• Firms with large portfolios of renewable assets may be evaluated using project finance-specific metrics like Cash Flow Available for Debt Service (CFADS).
• Dividend yields are frequently cited for these types of companies.

Here are a few examples:

Asset-Level "Comparables":

• Analysts often create detailed profiles of the individual renewable energy assets (solar, wind, etc.) to understand how their capacities, contract terms, and other characteristics compare.

Asset-Level Analysis:

• Modeling the performance of individual solar, wind, and other renewable energy projects is crucial since you’ll work on many?divestitures ?involving them, as it involves understanding factors like PPA rates, escalation factors, debt sculpting , debt service coverage ratios (DSCR), and leveraged life coverage ratios (LLCR).

Sum-of-the-Parts (SOTP) Valuation :

• This methodology is more commonly used in the renewable energy sector, as many companies operate across multiple verticals within the broader renewable energy ecosystem.

Example Valuations, Pitch Books, Fairness Opinions, and Investor Presentations

This list was extremely difficult to compile due to the lack of company-level deals in the sector, but I’ve done my best:

Solar

Sunergy Renewables?– SPAC / IPO (Cohen and Houlihan Capital)

• Investor Presentation
• Fairness Opinion (pg. 146)

SunPower / Maxeon?– Spin-Off (Centerview and GS)

• Investor Presentation

CBRE and Blackstone / Altus Power?– SPAC / IPO (Citi, JPM, MS, and Duff & Phelps)

• IPO Investor Presentation
• Fairness Opinion (pg. 132)

ConEdison / Sempra Solar?– Acquisition (CCA, Citi, Lazard, CS, and JPM)

• Investor Presentation

Shanghai Xingsheng Equity Investment & Management Co. / Trina Solar?– Acquisition (Citi, Industrial Bank, and Duff & Phelps)

• Deal and Valuation Update
• Fairness Opinion

Wind

Iberdrola / Avangrid?– Acquisition (Moelis and MS)

• Discussion Materials and Valuation Presentation – Moelis
• Going-Private Transaction – Investor Presentation

Regal Concord Limited / China Ming Yang Wind Power Group?– Acquisition (Kroll Securities)

• Duff & Phelps – Valuation

AEP / Sempra Renewables Wind Portfolio?– Acquisition (Wells Fargo, CS, and JPM)

• Investor Presentation

Biofuels and Renewable Natural Gas (RNG)

BP / Archaea Energy?– Acquisition (MS and BofA)

• Investor Presentation
• Fairness Opinion

Chevron / Renewable Energy Group?– Acquisition (GS and Guggenheim)

• Investor Presentation
• Fairness Opinion

Green Plains Partners / Green Plains Inc.?– MPL Buy-In Transaction (BofA and Evercore)

• BofA – Discussion Materials and Valuation
• Fairness Opinion (pg. 60)

Storage and Batteries

NRG / Vivint?– Acquisition (GS and JPM)

• Investor Presentation
• Fairness Opinion

Emerson Electric / Open Systems International?– Acquisition (Centerview and Lazard)

• Investor Presentation

Electric Vehicles (EVs)

Schaeffler / Vitesco Technologies?– Acquisition (BNP, BofA, Citi, JPM, and Lazard)

• Transaction Overview
• Valuation / Fairness Opinion by ValueTrust (pg. 90)

TPG / EVBox?– SPAC / IPO (Cancelled Deal) (Nomura, DB, JPM, and Barclays)

• Investor Presentation

Diversified Renewables

Abu Dhabi Future Energy Company / TERNA Energy?– Acquisition (Rothschild and MS)

• Investor Presentation

Omega Gera??o / Omega Desenvolvimento?– Subisidiary Mergers (Lazard and Berkan)

• Deal Process Update and Valuation

Canada Pension Plan Investment Board / Pattern Energy Group?– Acquisition (BofA, Evercore, and GS)

• Investor Presentation
• Green Bonds Presentation
• Fairness Opinion (Evercore)

Renewable Energy Investment Banking League Tables: The Top Firms

Among the bulge bracket investment banks, Bank of America, Barclays, Citigroup, and Morgan Stanley are considered the strongest players in the renewable energy sector, having advised on many of the largest deals. JPMorgan Chase and Goldman Sachs also have a presence in the space, but are slightly behind the aforementioned banks.

In the elite boutique category, Evercore and Lazard have traditionally been prominent, while Moelis and Guggenheim have also established significant deal flow in renewable energy.

In the middle market, Jefferies has been actively recruiting top talent in renewable energy M&A and is expected to be a strong performer going forward. Nomura Greentech is also a standout, though its classification is somewhat ambiguous compared to the other categories.

Other middle market and "in-between" firms, such as Macquarie, Wells Fargo, CIBC, and TD, are active in the space but tend to be less consistent than the top players mentioned above.

There is also a cohort of dedicated renewable energy boutique banks, including Marathon Capital, Onpeak Capital, CRC-IB, Finergreen, Virentis, Ocean Park, Global Power Partners, and Rubicon Capital.

Additionally, various European and Japanese banks with strengths in project finance, such as Société Générale, BNP Paribas, Santander, and Mizuho, are also active in the renewable energy debt and lending market, though they are less prominent in M&A advisory.

Regarding geographical focus, the renewable energy investment banking hub appears to be shifting towards Houston, while New York remains a base for more traditional power deals.

Exit Opportunities

Exit opportunities out of renewable energy investment banking are quite good because:

1. Transferable Skill Set: The skill set developed in renewable energy investment banking is not overly specialized, making it relatively easy to transition to other areas.
2. Private Equity and Hedge Funds: Many private equity firms and hedge funds actively invest in the renewable energy sector or related industries like chemicals, industrials, technology, and power. This provides viable exit opportunities.
3. Corporate Development: Renewable energy investment banking experience can be leveraged to join the corporate development teams of companies operating in the renewable energy and adjacent sectors.
4. Broader Industry Groups: If there are concerns about potential "pigeonholing" in the renewable energy space, it's possible to move into more generalist investment banking groups before pursuing buy-side roles.

The relatively broad applicability of the skills and knowledge acquired in renewable energy investment banking helps to mitigate the risk of being overly specialized, making the exit opportunities from this domain quite good overall.

Professionals can transition to private equity, hedge funds, corporate development, or even broader investment banking industry groups, depending on their long-term career goals.

Should You Pursue a Career in Renewable Energy Investment Banking?

Given the benefits outlined above – diverse deal flow, plenty of exit opportunities, and verticals that resemble other industry groups – there are some very good reasons to join the renewable energy investment banking team.

Many people also argue that renewables will grow faster than virtually any other sector in the global economy, which means even more deals in the future.

However, this brings us to the biggest risk factor: All these predictions could be wrong or overly aggressive. Despite what renewable cheerleaders often claim, the entire industry is very dependent on government subsidies, tax incentives, regulation, and even monetary/fiscal/trade policy. While solar, wind, and storage costs have decreased over time and become more competitive with fossil fuels, government actions and policies still play a huge role.

We have already seen a blowback against ESG policies at companies, and it could easily spread into broader areas. The big "X Factor" here is how much the costs of this energy transition end up affecting the average person. If they must deal with much higher energy costs, in addition to everything else that has shot up in recent years, expect a lot of pushback and slower adoption curves.

I don't necessarily think the sector will crash, but it might turn out to be slightly less green than expected – on both axes.