Are current low renewables valuations an opportunity to pick up assets or a sign that equity is steering clear of renewables and the US market? 

A panel of three private equity fund investors, a prominent project developer and an investment banker talked about how they read the current market at our 34th annual energy finance conference in June in San Diego. The following is an edited transcript.

The panelists are Himanshu Saxena, CEO of Lotus Infrastructure Partners, Blake Nixon, CEO of Geronimo Energy, Chris Moakley, managing partner of Excelsior Energy Capital, Britta von Oesen, a partner in investment bank CRC-IB, and David Field, founding partner of Arroyo Investors. The moderator is Elizabeth Sluder with Norton Rose Fulbright in Los Angeles.

Share Prices

MS. SLUDER: A recent Motley Fool article highlighted five power company stocks: Constellation, Clearway, NextEra, First Solar and Brookfield. The stocks have five very different trajectories. Two are high, two are low, and then First Solar took a tumble. Can we deduce any trends when we look at those stock prices? 

MR. SAXENA: There has been a notable shift in the prices of publicly traded stocks in the last 24 months. It started happening even before President Trump began his second term. A lot of wind was leaving the sails of the renewable energy industry. That was happening despite the huge tailwind provided by the Inflation Reduction Act. Costs were increasing to build assets.

The prices at which electricity is sold under power purchase agreements bottomed out in 2020 or 2021 when developers were signing PPAs at electricity prices in the high single digits and low double digits. We saw a PPA for $9.99 a megawatt hour, and the developer insisted he could make a lot of money after the PPA reached the end of term. People were doing crazy stuff because the cost to build was low and interest rates were low. That started turning 24 months ago and, with the turn, renewable energy stocks started to decline. This administration just accelerated a trend that was already underway.

We are signing power contracts with tech companies to supply renewable electricity. We are also signing power contracts with them to supply electricity from gas-fired power plants. Everybody is now punting a bit on sustainability goals.

There is a different dynamic now than there was 24 months ago.

The question is how much of the current pricing for renewable energy companies reflects a hope that there will still be a renewable energy industry after 2028. People are unwilling to pay for long-term pipelines of development-stage assets on the private side, but public companies are still assigning value to post-2028 pipelines. That is a disconnect. 

Is it a good time to buy public stocks? I don't think so. Is it a good time to invest in private assets on the renewables side? Yes, probably.

MS. SLUDER: Do any of the panelists in the room have a different view?

MR. NIXON: The data in the Motley Fool article do not tell the whole story. The market is a really great synthesizer of information, and it is a wonderful mechanism for learning about what is valued on both a backward-looking basis and a forward-looking basis. The data tell the short-term post-Trump story.

The real story is Constellation is up 5 1/2 times in five years and over two times in the last two years. First Solar, even though it has been down lately, is up two times since the Inflation Reduction Act passed.

What is not on this list is any construction contractors. They are up dramatically. Conversely, what happened with the IRA is renewables companies are down. One of them is down hugely. It is not on your list because nobody is recommending it any more, but XPLR Infrastructure is a pure play that is down 84% in the last five years. 

The IRA transferred a lot of value from ratepayers and renewables builders, developers and owners to companies that make stuff and build stuff and to nuclear providers. That is what the market tells you.

More recently, you see the Trump trade and the confusion because there is so much noise in it, but you see a move into AI and data centers, which is the real story. That shows up in the Constellation share price. Constellation is the only meaningful mover in this group in the last two years. The share price has doubled. Everybody else is flat to down a little bit. There has been a clear value transfer, and it has shaken the renewables business.

The contrary point is that this is no longer about renewables or conventional power. The last panel said it really well. It is about all of the above. We will not be able to keep pace in AI and data centers without all and everything we can do, all the time, as fast as possible. I don't believe the renewables industry is dead. It is strong and needed as much as everything else.

MR. MOAKLEY: I agree with my Minnesota neighbor. The country needs all forms of generation. 

We just finished raising our second fund. We set out to raise $750 million, and we closed out at $1 billion. Sure the renewable energy industry has headwinds right now. The potential changes that could have an impact on availability of tax credits and other programs that affect demand for renewables are a headwind, but it is not the first time our industry has hit a headwind.

We have been talking to our limited-partner investors about what happens when tax credits go away and how renewables will remain competitive. Many of the companies in the audience have started construction on enough projects to take them through 2028.

I agree with what Ty Daul said on an earlier panel that we could see a gap after that. We have to prepare for it. 

Half of Excelsior’s limited partner investors are domiciled in the US and half outside. We have 13 limited partners in Japan. They have been closely monitoring the debate in Congress. The proposed FEOC restrictions on ties with Chinese suppliers are confusing. Our investors wonder whether the goal is really to impair renewables rather than shift manufacturing to the US from China.

MS. VON OESEN: There is a third option beyond buying the stocks that we are talking about, and that is private investment. We have seen some recent take-private transactions, with Altus being a great example. We are having those conversations today with groups that feel the public markets do not appropriately value them. This will lead to a lot more take-private transactions in the next 12 months as renewables companies refocus on private capital that understands their business.

MR. FIELD: I am purely a private buyer. Government policy in the United States had created a halo effect around renewables, making them attractive to private capital. Now there is a higher risk premium on these types of assets because of the shift in policy. The halo masked the true operating performance of these types of assets. Now that the halo is going away, we are seeing a clearer picture.

I am usually an investor in brownfield projects that are already in operation and may be undergoing an expansion, and we have certainly monetized development pipelines of such projects. 

We have seen a lot of sales recently of minority positions in large platform companies. There is a better risk-adjusted return over a large portfolio of assets.

MS. VON OESEN: I had a conversation last night over dinner with a large developer that is backed by one of the major pension funds. The pension fund says that the current US market has regulatory risk, contracting risk, execution risk and significant political risk. If it were any other country, you would put major brakes on further investment. David, you said the halo is going away, but isn't the fact the pension fund is still putting capital into its developer portfolio company evidence that a halo remains?

MR. FIELD: We are troubled by the pancaking of risks. We do not think it has been priced adequately. We have been big renewables investors in the past but in markets where there is a clear, concise and stable public policy around renewables. For example, we have done well investing in renewables in Chile.

MR. MOAKLEY: I mentioned that we raised our second fund at the end of March. Then the House version of the "One Big Beautiful Bill" came out, and we were getting lots of questions from our investors about what is happening in the US. I think it may be tough to raise new capital for the next year. People are waiting to see whether the US government changes the law on companies that have already committed meaningful money to investments.

MR. NIXON: I like to watch what smart people do. When smart people who run public companies have cheap capital, they buy stuff. 

Today you see the traditional independent power producers buying stuff left, right and center. You also see people that I think are really smart, Himanshu Saxena being one of them and LS Power being another, selling their portfolios into that strength. That says something to me. What it says is the easy money has already been made in that trade and the contrarian play, which is what I was taught by my mentor, is renewables.

Lowest-Cost Electricity?

MR. SAXENA: Let me add a few things. I am not negative on renewables. I agree that this is going to be all of the above, and everybody knows that the only things that can be built in the next two to three years are renewables. New gas plants cannot be built until 2030. Any gas turbines you buy today will not be delivered until then.

Renewables and conventional assets have to coexist. What happened five years ago is the narrative became renewables all the time. The perception was renewables were going to rule the world and conventional assets have no place. That has been shattered. 

We are signing contracts with tech companies for hundreds of megawatts of power from gas-fired power plants. We are also signing hundreds of megawatts of contracts for electricity from renewable power plants. Customers want both products. 

I keep hearing that renewables are cheaper than conventional assets, but that has probably not been true for quite some time. We have development-stage projects in Texas, Ohio and other parts of the country where the price of solar electricity is a minimum of $50 a megawatt hour, and that is on a subsidized basis. The subsidy for solar is $25 to $30. That suggests an unsubsidized price of $75, which is significantly above the market price of power. These renewable deals are not cheaper than market. We have signed some contracts in the $60 to $70 range, and that is only if we get 100% of the subsidies.

It is a myth that that renewable power is cheaper than conventional power. Customers tell us they will keep buying renewable power because they like the clean attributes, but they are no longer doing it because it is the cheapest source of power.

Mr. NIXON: If you look at the installed cost per megawatt of capacity, renewables are cheaper. 

MR. SAXENA: The question then becomes whether value should be assigned to reliability.

Valuation Drivers

MS. SLUDER: What are the current drivers that are influencing valuations?

Mr. MOAKLEY: I will be able to tell you more a few months from now because we just put 1,200 megawatts of fund-one assets up for sale. They are three utility-scale wind and three utility-scale solar projects that are currently in operation. We are just starting, but I think we had more than 40 non-disclosure agreements come back from interested bidders. 

There is still a lot of interest in operating assets.

We have a weighted life of 17 years remaining on the offtake contracts. 

It is a little less clear how much interest there is today in development-stage assets. It is unclear whether they face a buyer's or a seller's market.

MS. SLUDER: The Financial Times suggested this week that it is too hard to value renewables assets currently given the unpredictable tariffs and debate currently underway in Congress to roll back incentives. Are people hitting the brakes on projects that are not yet in service for that reason?

MR. FIELD: From a valuation perspective, all of us have benefited from a very cheap cost of capital. We are in an incredibly capital-intensive industry. Interest rates are still low compared to what we have seen in our lifetimes. When I graduated from the University of Texas law school, I bought my first car, and my loan was at 9.5%. We benefited from a low cost of capital for a decade after the financial crisis in 2008. However, lately we have seen a dramatic increase.

If sellers need to sell, there will be buyers. Buyers will take into account the myriad issues associated with the short-term uncertainty. These assets trade. The risk premium in combination with the increase in the base cost of capital has an impact on valuations. There has been a sea change in risk.

Consolidation Ahead?

MS. SLUDER: How is that influencing M&A deal flow?

MS. VON OESEN: Operating assets and assets that are under construction are business as usual. People are transacting on those. There is a lot of capital hunting for those assets, because they are de-risked from the tariffs and tax law changes.

How the level of interest in the mid-term pipeline changes over the next couple of years will be really interesting. That was already capital constrained for mid-sized developers who have been struggling to put down large deposits for interconnection. That market is headed for a shakeout over the next three years, 2025 through 2027. You add on top of that the tariff and tax risk, and you are going to see a significant number projects fall out of the interconnection queues. Good assets are going to be traded. I expect to see a significant amount of consolidation among smaller developers that are not well capitalized. 

MR. MOAKLEY: How do you think the capital stack will change when the tax credits go away? 

MS. VON OESEN: There are a lot of creative solutions that are being thought through right now. One is if the bonus depreciation is back. That certainly feels like a part not to overlook and see how we can structure deals to take advantage of it as a potential replacement for lost tax credits. 

MS. SLUDER: Chris Moakley, you just assumed the tax credits are going away. Is that a given? Are people now valuing development-stage assets without tax credits?

MR. MOAKLEY: We have been spending a lot of time with our investors gaming out what happens. We want to be prepared. 

MR. SAXENA: We have been in the market recently selling both conventional and renewable assets. Let me share some of what we learned with you. 

We were selling a portfolio of gas plants. We had more than 60 NDAs signed. We were selling a contracted solar plant. We had no more than 30 NDAs for it. This would have been completely the opposite three years ago.

There are significantly more buyers now trying to balance their portfolios. A lot of companies that have historically only done renewables are now looking at buying gas plants. 

For renewables projects that are already in operation, the cost of capital has risen significantly. You can argue whether that is related to the 10-year Treasuries or risk-free cost of capital, but the cost of equity has gone up from 7%, 8% or 9% to something in the low double digits. Buyers will show up to buy operating renewables assets, but the prices will be significantly lower today than you would have gotten three years ago.

US Exit?

MS. SLUDER: David Field, you said you have invested heavily in Chile. Do you see investors shifting attention to other countries until the policy and tariff situation settles in the US?

MR. FIELD: Our exposure internationally is limited. Chile has been a tremendous success story. Canadian capital owns a significant part of the overall energy grid in Chile. Chile has been able to attract international capital to its energy sector on the strength of high-quality resources, clear rules and long-term incentives that are highly predictable and highly stable.

The US has had some of that. Renewables are now suffering due to uncertain tax, tariff and regulatory policies. That makes pricing tougher.

The flip side is that returns in Chile are quite low in renewables for operating assets. We are more interested now in renewable opportunities in United States where we see the risk-return ratio returning to a better level.

MS. VON OESEN: It is too early to say investors are losing interest in the US market. Certainly there is a pause. The capital is there. We are having daily conversations with investors who are eager to deploy capital in this market, but they want to understand what will happen. It is a short-term problem.

MS. SLUDER: How do you define short term?

MS. VON OESEN: Until there is a resolution on the budget reconciliation bill.

MR. NIXON: Just to be provocative, I think we have had and still have too much capital in this business. It drives down returns. The real issues in the industry are way too many developers, way too many people in the interconnection queues, and way too many people out talking to landowners that don't know what they are doing. It really mucks up the machinery for people trying to do real business, full stop. 

This comes from a guy that was doing 20 years ago what I am complaining about today.

We do need a flushing out of the system. Maybe it takes some policy that might look draconian on its on its face to flush out the less sophisticated capital. That will be better for us all to be honest.

MR. MOAKLEY: We don’t know yet whether a reconciliation bill along the lines that House Republicans have been debating will chill the ability to raise capital for renewables.

MR. SAXENA: On top of all that, there is a fundamental question about affordability. We are seeing reluctance from buyers who would have bought electricity at $30 to $40 a megawatt hour, but they are not willing to pay the $50, $60 or $70 that renewables are asking for.

Bankruptcy Risk

MS. SLUDER: I gave the panelists a list of things that might be influential factors in valuations. We have about 10 minutes left before we need to switch to audience questions. This will be a semi-rapid-fire round.

Let's talk about bankruptcy risk. Powin has been in the news this past week. Is bankruptcy risk a big factor in assessing the stability of battery and solar panel suppliers?

MR. NIXON: If it is a proprietary system, it is a big risk. If it is not, it is not.

MS. SLUDER: Are you worried about who will stand behind the warranty when you say proprietary?

MR. NIXON: Of course. For a lot of equipment, you can swap it out and get spare parts from other people. Somebody will step in. If it is a decent technology, somebody will buy it out of bankruptcy and take it forward. 

MS. VON OESEN: If you are trying to hit a deadline to take delivery of equipment or be placed in service to lock in tax credits for a project, bankruptcy can disrupt the supply chain and cause issues for developers.

MR. SAXENA: Bankruptcy risk for solar panels is low because they can be replaced pretty easily. I do worry about batteries.

ESG

MS. SLUDER: What about ESG or impact investing. Is that still a motivator that has an effect on valuations?

MR. MOAKLEY: It remains important for overseas investors. As I mentioned, we have quite a few limited partners in Japan. They still want to see the reporting. Certainly they want to see returns, but it is still important. 

MR. FIELD: I echo that. For international investors, ESG is still a key focus for capital deployment. Many of the traditional global project finance banks have heavy exposure to natural gas assets, offshore oil production platforms and, in combination with Basel IV restrictions, I think you will begin to see project finance banks look to take some of that exposure off balance sheet. Those assets will move to private capital, and it will have an impact on the cost of capital for those types of assets.

MR. SAXENA: There were a lot of Japanese and German banks that would not finance conventional assets in the past. They are now saying they are open to everything, except coal. 

Like Chris and David, we raise pools of capital. We have a global set of investors. Canadian pension plans are scrapping net zero goals. There is still an emphasis on ESG, but it is not front of mind as it used to be. It is one of many considerations now. It is not binary.

MS. VON OESEN: ESG was a significant driver of the valuations in the 2020 and 2021 bubble during Covid. It is no longer driving decisions as it did then.

Rising Electricity Demand

MR. SLUDER: What about increasing electricity demand? We hear a lot about the need from data centers for power.

MR. NIXON: Yes, it is a primary valuation driver.

MR. SAXENA: I have learned more about the data center business in the last 12 months than I really ever wanted to know. We are in the middle of negotiations on both existing and new assets, gas and renewables, with every tech company. So the demand seems insatiable. 

Electricity prices and the valuations of assets that generate that electricity are going to increase for that reason. Every system operator is now looking at the problem of how the grid can accommodate the additional load. It is an exciting time for that reason because customers want us, and that has not happened in a long time.

MR. MOAKLEY: However, data centers are looking for a firm power solution. 

MS. VON OESEN: Several years ago, an offtake contract was a golden ticket. You had to have to one to have a real project. Today, people do not want an offtake contract. They want the opportunity to sell the power on their own. Data centers are driving a lot of that.

Audience Questions

MS. SLUDER: Time for the audience. Questions anyone?

MR. KRAATZ: Frank Kraatz, president of wpd US. We are a utility-scale independent power producer focused on renewables. We do not have any operating assets yet in the US.

Himanshu Saxena, you said renewables are not competitive, but I think Blake Nixon is spot on because more electricity is needed. That will drive up prices with or without tax credits. Renewables will remain competitive because there are not many alternatives.

Once tax credits end, how projects get financed will change. How do you see that affecting the cost of capital?

MR. SAXENA: I don't think the amount of equity in the capital structure will change. The typical capital stack is 10% to 15% equity today. The cost of equity has increased. It was commanding 7%, 8% or 9% a few years ago. Now it is at 10%, 11% or 12%.

Even if you switch to a 50-50 debt-equity structure, I don't think the cost of equity will change because the cost is not a question of liquidity. There is plenty of equity available for contracted operating assets. It is a question of risk. The risk profile may be a little different depending on whether someone is putting in debt or equity. Developers like tax equity because, unlike debt, a tax equity investor will not foreclose on the project.

MR. CASEY: Jack Casey, vice chairman of Meridian Investments. How deep is the current equity market and are you seeing strong interest from endowments, pension funds and family offices?

MR. MOAKLEY: It is really a mix. We have pension funds, we have endowments, we have family offices, we have strategics and we have corporates. The investor market has been pretty deep.

MR. FIELD: I echo that. The 12 largest mega-cap energy infrastructure allocators now have roughly 60% of the capital commitments. There is still a lot of dry powder within those large mega funds, but even for mid-cap firms such as ourselves, of which there is a fair amount of competition to raise capital, there is still ample access to capital. The capital is coming not only from US pensions, endowments and family offices, but it is also coming from similar entities around the world. There is ample capital. 

However, there has been a resetting of return expectations. Equity investors overall are looking for higher returns. 

Coda

MR. PIRES: Pedro Pires, CFO of EDP Renewables. I have more of a comment than a question. EDP Renewables was trading in February 2018 when we first listed in Europe with about one tenth of our current capacity at seven times earnings. In September 2024, the share price was 16 times earnings. In April this year, it was back to seven times earnings. What happened between September and today? We all know what happened.

So to your point Britta von Oesen, I think the deals are here. We are not going to raise capital at the holding company level at this current valuation, but we are in the market with a portfolio of 10 projects and 1,600 megawatts. We want to place the portfolio with a single investor, and we have more than 15 bids. We are now at the last, stage with only three investors, and every one of them meets our minimum threshold for asset rotation, which is 1.5 times IRR over WACC. This is a contracted portfolio -- wind, solar, BESS -- fully contracted and mostly constructed.

I don't think capital is a constraint. Where you raise capital might be different, and companies need to adapt. You don't raise it at the level of the publicly listed holding company. You raise it at the asset level, and the valuations are there to support such capital raises.

The Financial Times comment that it is impossible to value these assets currently because of the policy uncertainty is utterly wrong.

You need to value them at the asset level. What is true is that companies that are overly exposed to the US market are being massively, massively penalized.

The fundamentals remain. Demand is strong. We have not talked much in this conference about the price inelasticity of electricity demand. We lived in a world in the past when the tax credits regularly expired and then had to be extended. You would go to the offtaker with one price with tax credits and another price without tax credits. 

There is another important point. When I wake up, I have tariffs of 25%. When I go to bed, I have tariffs of 100%. No offtaker will take that risk. 

When I think about things from the perspective of a listed company in Europe that has 50% of its capital allocated to the US, we had plans to invest between 2,500 and 3,000 megawatts of new electricity generating capacity every year in the US. We are not reducing our commitment to the US market, but we are scaling down. We will scale down from 2,500 to 3,000 megawatts a year to 1,000 megawatts because we want to remain present in the market, but no one among our senior management or major shareholders has an appetite currently to do more.

Anyone like us that has had a big commitment to the US market is basically scaling down. You are reducing the pace and adopting a wait-and-see stance.