The discount rate (a proxy of cost of capital) for secondary market renewable energy M&A deals is a vitally important piece of information for investors. It is a key driver in determining the fair value or market price for projects. However, this data is extremely hard to gather so investors often have to rely solely on their own experience and advice from valuation experts in evaluating the cost of capital.
In this spirit, Grant Thornton launched a survey to gauge investors’ perception of cost of capital. We asked one simple question: What most closely matches the discount rate you would expect to see for the following secondary market deals? We asked this with respect to levered and unlevered secondary market ground mount solar, onshore wind, offshore wind and hydro projects. We have also observed enterprise value per megawatt (EV/MW), a widely used metric across the industry. The survey was distributed across ten geographies which have strong renewable markets: Australia, Canada, France, Germany, Ireland, Italy, Nordics, Spain, the UK and the USA.
In total, over 100 investors responded to the survey, representing billions of pounds of capital under management. The results are shown in the following pages. Please note that cost of capital needs to be considered in the context of the various underlying assumptions such as power curves, inflation and project lives (amongst others), which will vary for all of the respondents.