Renewables/Altnernative Energy Banking -General Inquiries and Questions
Hey Everyone,
I was recently looking into power and energy banking and couldn't find that much information about banking with renewable energy/alternative energy companies. I was wondering if anyone has any insight or has worked at a firm that covers renewables/alternative energy. The majority of my questions are surrounding the valuation of these companies, multiples used, statistics used, how tax incentives and subsidies affect the valuation etc. My confusion comes from the fact that the majority of these energy companies (solar/wind farms) can have negative EBITDA and ultimately survive to become profitable. Are there statistics used such as EBITDAX in o&g? If anyone has insight into this and would like to speak about it I would greatly appreciate it. Thank you.
I can’t offer you too much insight, but there is an Agriculture & Renewables IB group at Piper Jaffray. I spoke with one of the guys there and he mentioned that NOL valuation is often an important piece.
I dunno who you talked to but IMO NOL valuation is not that important – that’s like saying a tax step up analysis is also often an important piece. Yes, they’re both incorporated at times, but definitely not in the majority of cases (at least in my exp.)
Find mostly standard valuation approaches – both public comps and M&A comps (EV / Rev, EV / EBITDA, etc.). Some sub verticals will have their own unique metrics (ex: ethanol plants valued on a per gallon basis, but the concept is the same). If EBITDA negative currently, often you slap a multiple 2 or 3 years out for example and then discount back in addition to revenue multiples. DCFs of course are commonplace. What is also frequently used are private placement valuations – basically looking at required investor returns with a theoretical exit of either M&A or IPO.
Contribution margin is something that can be used too (and incorporated into any of the above) because often many of the likeliest buyers will be strategics and not financials, at least on the deals I was working on.
And then there are some other methodologies you see from time to time, such as NAV valuation for a depleting asset, say, for some LFG capture company.
Important was likely a poor choice of wording on my part, 'a complicating factor' is probably a better way to put it.
Are there any good reading resources on renewable / valuing solar or renewable assets? I had previously worked in solar and am keen to get back into cleantech now.
Is cleantech now viable again? I remember in the 2008-ish period the sector died off. Keen to hear if it's come back though and in what form.
We’re in clean tech 2.0 – the 1st wave of clean tech was more focused on generating energy. But what is just as important, if not more, is how we use energy and ways to conserve energy / minimize impact – ways to use resources that we currently have. Put differently, focus has now shifted more towards “How do we create startups out of tech that already exists but tweak / modify them in a creative way and scale and not just moonshots such as some magical renewable fuel”.
I mean look, the global macro trends that gave us the original clean tech wave still relevant: world populations and middle class are still increasing – thus increasing resource constraints (whether energy, food, or other), more people moving to cities, climate change still a thing, shifts to lower-carbon technology, environmental risk is now financial risk, etc.
One thing that has de-risked the current clean tech market environment from the prior one is that it is less capex intensive as new firms are now able to leverage existing infrastructure and capabilities and technology improves. Not only are there incubator / accelerator programs such as Cyclotron Road and Greentown Labs (think startups able to rely on AWS and other database providers to lower costs), but costs coming down on the tech side are flowing down to industrials and consumers resulting in tech becoming increasingly accessible – industrial robots, drones, ability to take facial recognition software and apply to analyzing crop diseases, for example.
A big challenge in clean tech is the timing of $ needed (not that it is too expensive overall) – scaling is one of biggest challenges and today investors are less willing to fund the old Kiors, Gevos, etc. so business models and financial plans have changed accordingly to adopt to more conservative investor risk appetites regarding new clean tech opportunities. Here’s a good link on how Kior blew up back in the day (http://fortune.com/kior-vinod-khosla-clean-tech/) – IMO the days of that type of funding environment are over in clean tech. Need things like proof of concept on a pilot plant level / demonstrated mode of action to help get investors comfortable instead of people willing to throw $100s of millions into funding the entire project.
This is great. Do you have any models or reading materials other than the article?
bump
Spoiler alert: they don't (at least not in the near term)
agreed they need the tax incentives and possibly REC sales to try to offset the negative cash flow
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