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Abu Dhabi’s state-backed green energy group Masdar is on the hunt for more European acquisitions after buying Greece’s biggest renewables company last week, as financial strains in the sector drive down valuations and create room for deals.
Mohamed Jameel Al Ramahi, chief executive, told the Financial Times the deal for Terna Energy at a €3.2bn valuation was just the start of a further expansion into central and eastern Europe.
“The reality is we are not just acquiring this platform and portfolio,” he said. “We are going to be pumping more capital into Greece and into Europe.”
“This is a strategic deal for us where we reinforce our presence in Greece but, more importantly, in eastern Europe,” he added, citing the company’s presence in Serbia, Montenegro and Poland, as well as its “strong pipeline” in the region.
After a decade of rapid growth, the renewables industry has come under pressure from higher interest rates, particularly in Europe where several companies have scaled back or cancelled plans.
But Al Ramahi said higher interest rates had brought the sector back to reality and made people “come to their senses” over deals.
“When interest rates were at zero, or negative, people were expecting high valuations. If you didn’t give them the value that they dreamt of, they could go to the bank and borrow at zero interest and continue their growth story. They don’t need you.
“Now [higher rates] triggered a realisation to the market that the valuation they were thinking of is not real.”
In recent months, cash-rich buyers from the US and the Gulf states have stepped up their dealmaking in the capital-intensive sector.
Masdar, which is funded by the UAE’s sovereign wealth fund Mubadala, its power and water company Taqa and its national oil company Adnoc, has amassed a $30bn portfolio of renewable projects.
As well as Terna, it recently bought 49 per cent of the UK’s £11bn Dogger Bank wind project, a €1.6bn slice of a wind farm in the Baltic Sea and a 50 per cent stake in US wind, solar and energy storage group Terra-Gen.
Meanwhile, Canadian infrastructure investor Brookfield and Singaporean state investment fund Temasek said last month they were in exclusive talks to buy French solar and wind developer Neoen at a €6.1bn valuation, after the company said it needed more capital for growth.
Connor Teskey, head of renewable power at Brookfield, said at the time the talks were announced that he expected to see more deals.
“In order to capture all this demand [for renewable electricity], these businesses need to be supported by very well-capitalised, deep-pocketed shareholders. That is in no way a criticism of the shareholders of the past that have built these great businesses and turned them into great platforms but there is simply a different scale that is required for this next chapter of growth.”
Other big deals in the space include KKR’s €2.8bn takeover of Germany-headquartered renewable power producer Encavis, which is expected to close at the end of this year
Masdar has turbocharged its dealmaking in order to meet its target of 100GW of renewable capacity by 2030. It currently has roughly 20GW of projects either up and running, being built or in development.
“We needed to shift gear,” Al Ramahi said. “We needed to start looking at and assessing new opportunities that are large and at scale. We had to start thinking about making big acquisitions.”
Despite growing concerns in many European governments over foreign ownership of critical energy infrastructure, Al Ramahi said Masdar had so far not run into any issues.
“We have not seen that we are not welcomed anywhere,” he said. “On the contrary, all doors have been opened for us everywhere we have gone.”
He added that he was neutral on using Chinese-made solar panels or wind turbines. “We believe in an open liberal market. [We will buy from] anyone who can scale up and supply the product at the right time, at the right price.”