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Renewable Energy and the Opportunities for Portuguese Venture Capital Funds

The Scale of Investment in Renewable Energy

An analysis conducted by S&P Global Market Intelligence, concluded that M&A investment in renewable energy, involving Private Equity and Venture Capital funds, increased 159% from 2020 to 2021 worldwide, reaching a transaction level of $14.66 billion in 2021.

By May 2022, the value invested in renewable energy already accounted for around 81% of the total amount in 2021, the previous full year. However, financing of renewable energy projects and businesses through private funds still accounts for only a small part of the total financing universe.

What are the Targets for Renewable Energy?

The International Monetary Fund predicted that for the world to attain net-zero carbon emissions by 2050, would require additional investment of between $12 to $20 trillion, representing an investment of between 0.6% to 1% of the global GDP. To attain this goal, the finance sector needs to play a larger role, and Private Equity and Venture Capital funds are very likely to be key drivers.

In Europe, the European Parliament has approved a Directive that sets the goals of 40% renewable energy within the total energy consumption, and to reduce net greenhouse gas emissions by 55% by 2030. To achieve these goals, the European Union intends to allow member countries to draft new legislation proposals aiming to increase certainty to both investors and promoters.

Most recently, events in Ukraine have forced countries to push energy issues to the top of the agenda and to accelerate the transition to cleaner energy sources, whilst simultaneously reducing dependence on Russia.

Developments and Investment in Solar Energy

An example of potential investment in solar energies, developed through Private Equity (PE) and Venture Capital funds, is the photovoltaic power station project. Solar power costs have been decreasing over the years and becoming more competitive and efficient in comparison to coal-based power. One of the biggest and most relevant PE firms, KKR, has recently announced an investment of €2 billion in a British renewable power plant operator, as a strategy to contribute to net-zero carbon neutrality.

Research conducted by Ernst & Young (EY Global 2022), details that PV (photovoltaic) attracts investors as it is backed by real assets and its revenues are inflation-linked, through power purchase agreements, with predictable returns. This same research concluded that investments in solar power energy can generate a return for investors of between 6.6% and 10.1% over the next 35 years.

Portugal and Investment in Renewable Energy

In Portugal, some main banks are already raising funds focused on solar and wind renewable energy. This is supplementing the already approved European Funds, the so-called ‘PRR’ in Portugal, where €370 million will be invested in renewable energies.

Portugal has around 2,200 to 3,000 hours of sunlight each year, positioning it as one of the most attractive countries to invest in solar energy in Europe. As an example, the Portuguese Electric Company, EDP, has developed Alqueva, the biggest floating solar park in Europe, with an approximate size of four football pitches.

Summary and New Business Opportunities

Climate change, current geo-political developments and the pressure for governments to enforce plans designed to generate a global energy transition towards the use of cleaner and more sustainable sources of power, are creating an attractive and growing set of business opportunities that can be optimized with the support of experienced private funds, in Portugal, able to raise significant amounts of capital.

Additional Information

If you require additional information regarding the matters above, please speak to your usual STAG contact, or to António Pereira or Ricardo Jesus at STAG’s office in Portugal:

antonio.pereira@stagfundmanagement.com

ricardo.jesus@stagfundmanagement.com

www.stagfundmanagement.com

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Comprehensive details regarding references for data sources and relevant links are available from STAG.

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