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Renewable energy discount rate survey 2018

Grant Thornton, in collaboration with Clean Energy Pipeline, is pleased to present the 2018 Grant Thornton renewable energy discount rate survey report.

This report follows the 2017 renewable energy discount rate survey report.

The discount rate (a proxy of cost of capital) for secondary market renewable energy M&A deals is a vitally important piece of information for investors. It is a key driver in determining the fair value or market price for projects. However, this data is extremely hard to gather so investors often have to rely solely on their own experience and advice from valuation experts in evaluating the cost of capital.

In this spirit, Grant Thornton launched a survey to gauge investors’ perception of cost of capital. We asked one simple question: What most closely matches the discount rate you would expect to see for the following secondary market deals? We asked this with respect to levered and unlevered secondary market ground mount solar, onshore wind, offshore wind, biomass and hydro projects.

In addition, we have also asked about the level of premium for subsidy-free (100% merchant exposure) projects, terminal value assumptions, accounting practice for decommissioning costs in end of life forecasts, and percentage of capital expenditure (capex) considered as reasonable for a Maintenance Reserve Account (MRA).

The survey was distributed across thirteen major geographies: Australia, Brazil, Canada, France, Germany, India, Ireland Italy, Japan, Nordics, Spain, the UK, and the USA.

Italy: Regulatory landscape and incentives

By the end of 2015, Italy had already surpassed its 2020 target of 17% renewable electricity in its total power mix and in June 2018, the country joined hands with other nations to support a binding renewables target of 35% by 2030 across the EU. According to industry forecasts, the amount of installed wind and solar capacity in Italy is expected to reach some 63 GW by 2030 from around 35 GW at the end of 2017.

Italy has also shifted towards a competitive bidding regime, aiming to contract around 4.8 GW of renewable energy capacity between January 2019 and January 2021 through seven wind-solar auctions specifically for 1+ MW projects. Regardless of the technology, projects that are linked with electric vehicle charging stations will be prioritised. The first two tenders will each assign around 500 MW of capacity,

with the third to fifth seeing around 700 MW each and the last two contracting 800 MW each. The first 500 MW has been scheduled to take place in January 2019.

The new auction scheme is expected to revive the utility scale solar sector in Italy, which has suffered from the end of the Conto Energia FIT schemes since 2011.