Financing the Nordic Energy Transition: An Empirical Analysis of Leverage, Pricing and Return Expectations in Renewable Energy Transactions

Sammanfattning: This study examines whether leverage and pricing in transactions of renewable energy infrastructure assets are impacted by the same factors that have been found to determine financial structures in buyout transactions. It primarily draws on a proprietary data set of 261 wind and solar photovoltaic (PV) transactions in the Nordics between 2011 and 2023 and explores the effect of acquirer-, asset-, and industry-specific characteristics as well as time-varying variables on leverage, pricing and return expectations. Using a standard regression set-up, I show that the most consistent effect on financial structures in renewable energy transactions originates from the volatility of forecasted power prices, which negatively impacts leverage, valuation multiples and return expectations. Transactions of assets that include agreements to sell a proportion of their future production at a set price have higher odds of being levered and are associated with higher return expectations. In addition, experienced and Nordics-based acquirers tend to use less leverage. I conclude that contrary to buyouts, leverage and pricing in renewable energy deals are not determined by time-series variation related to debt market conditions, but rather by acquirer-, asset- and industry-related attributes. Thus, an understanding of the industry-specific context, particularly an awareness for the importance of price risk, is crucial for investors looking to enter this sector.