Dive Brief:
- After several years of decline, acquisitions of renewable energy projects to pick up in North America in 2025, especially toward the latter half of the year, according to LevelTen Energy, which operates online marketplaces for renewable energy assets and power purchase agreements.
- Various market conditions, including rising interconnection and borrowing costs, have forced renewable energy developers to sell a growing number of projects at earlier stages, the company said in a new report.
- While demand for renewable energy projects, especially more mature projects, remains strong, the growing number of projects on the markets has eroded developers' profits, according to LevelTen Energy.
Dive Insight:
Despite the current federal policy uncertainty surrounding tariffs and tax credits, analysts at LevelTen Energy believe the sale of renewable energy projects could pick up in 2025. But the increased supply of early and mid-stage projects has created something of a buyer's market, which amid rising construction costs could further cut into renewable energy developers' earnings, they said.
Developers have already seen their profits decline for all but the most mature renewable energy projects. In 2024, North American developers typically earned between 2 cents per watt and 4 cents per watt of alternating current on the sale of early-stage projects, and something like 3 cents/watt to 6 cents/watt AC on mid-stage projects. Later-stage projects, on the other hand, could bring a developer between 5 cents/watt and 12 cents/watt AC, according to data from LevelTen. These price and earnings trends should continue through 2025, according to Clare Daly, director of M&A Solutions at LevelTen Energy.
Buyers of renewable energy projects have grown more selective since 2023 and prefer projects that expect to come online in 2025-2026, or 2027-2028 at the latest, Daly said. At the same time, various factors have pushed a growing number of early-stage projects onto the market. For example, smaller developers who can't afford to place larger interconnection deposits may be forced to sell to larger developers who can, Daly said. Other developers face a growing need to recycle capital in order to cover growing financing and developing costs, prompting them to sell projects they otherwise might choose to hold on to, according to LevelTen Energy.
The impact of more recent developments, including new tariffs on Canadian and Mexican imports and the still-uncertain fate of the tax credits created by the Inflation Reduction Act, remains less clear. The growing supply of renewable energy markets, which Daly said has buyers so flooded with prospective deals that they have begun to move away from competitive processes like auctions, seems likely to prevent sale prices from increasing. If project costs increase, developers could find themselves facing even slimmer profit margins.
“It is project by project and dependent on where we see things shake out in terms of tariffs and interest rates,” Daly said. But “if costs continue to increase, there are few levers to pull and developer fees are one of those [levers].”
Prior to 2023, even smaller developers had hoped to become independent power producers by buying and holding large renewable energy portfolios, Daly said. Current trends have largely erased those hopes and seem likely to trigger greater consolidation among renewable energy developers, she said.
LevelTen Energy has also seen other buyers of renewable energy projects, such as large investment funds and international companies, pull back from the market, restoring established independent power producers to their traditional position as the predominant buyers of new renewable energy projects. Although growing demand for electricity from AI and data centers has prompted rumors that hyperscalers may begin buying up renewable generation assets for themselves, LevelTen Energy has yet to see this trend materialize, Daly said.
But Daly said demand for renewable energy will likely continue to grow. While a growing number of large corporations have scaled back their climate ambitions in recent weeks, renewable energy projects can still be deployed at greater speed than conventional oil, gas or nuclear generation. Hyperscalers who want near-term access to new power supplies will likely continue to turn to wind and solar for their energy needs, Daly said.
