As with any other nascent industrial sector, in recent years we have also seen project developers grappling with the question of how to monetise the new asset classes they are developing.

With renewables projects in particular, project sizes in many parts of the world, including emerging regions such as Southeast Asia, have historically been small. The more successful project sponsors have sought to construct portfolios of assets, which combine cash-flow generative, power producing assets with a clear and committed development pipeline and a robust management and operational team. Portfolio or platform creation has allowed developers in many cases to raise further equity funding and green finance in various forms to support the development of their businesses.

Critically, from an M&A perspective, this has also facilitated the creation of companies of sufficient scale to attract material interest as acquisition targets from a range of strategics, private capital investors, and pension and other institutional funds.

This has led to a number of hotly contested auction processes globally in recent years, such as the $1.55bn Sprng Energy sale in India and the $605m sale of Nexif Energy to Ratch Group in Southeast Asia, which completed in early 2023.

A clear geographic strategy will often be important for the creation of a successful renewables portfolio for an M&A exit, says Philip Morgan, Freshfields Partner and head of the firm’s energy and natural resources practice in Asia. 'Platform sponsors will need to determine at an early stage whether they will be geographically diversified or focused on particular countries, regions or market types, for example, developed versus developing economies.'

A platform may focus on a single jurisdiction in countries such as India or the US where the domestic opportunity is huge. Or it could be more regional but thematic, as in developed economies in the Asia-Pacific region.

This approach may afford opportunities to reach scale domestically on an accelerated basis and allow for a narrower management focus.

More globally diversified portfolios will have the advantage of greater insulation from regulatory or market change in particular jurisdictions and may be able to draw on global best practices as a differentiator in developing markets, Philip Morgan says.

'Irrespective of the approach taken, developing a coherent business philosophy and strategy for the portfolio’s geographic growth, which is aligned with the emerging operational and regulatory landscape, will be critical when presenting a compelling target business to potential acquirors.'

As noted above, striking the right balance between development and generating assets in a renewables portfolio is very important. Producing assets demonstrate the management team’s capabilities and provide cash flow for debt repayments and to fund the development pipeline.

Whilst portfolio building has been a clear feature of the renewables industry, and one which has assisted in its growth to date, it remains to be seen whether portfolios will be replicated in other emerging, decarbonising industries such as biogas or battery energy storage systems (BESS), where scale and scalability remains uncertain in the short- to medium-term.

At present, and in a bid to reduce unit production costs to an economically viable level, most hydrogen projects are being conceived on a scale that would not lend itself well to portfolio creation, says James Chapman, Freshfields Partner advising on the energy transition, including project development and investment 'But this could change as the cost of key technologies reduces and technologies become easier and cheaper to deploy on a smaller scale and using more modular technology, as we have seen to some extent in recent years with LNG regasification.'