Winds of change for investing in renewable energy in Ireland

With Ireland’s focus on increasing its use of renewable sources to provide energy, it means there are growing opportunities to invest in wind power.

For those with an interest in how Ireland addresses the climate challenge, May 18 was a date circled in the diary – that was the day when the government’s 2021 Climate Action Plan consultation closed.

The Climate Action Plan is the Irish government’s strategy for how the country becomes a climate neutral economy and resilient society by 2050. In legislation published in March, the government announced a target of a 51% reduction in emissions by the end of the decade. The Bill also outlines how Ireland plans to meet its international and EU climate commitments and how the country plans “to become a leader rather than a laggard in addressing climate change.”

The bold strategy has clear markers for how Ireland will achieve its aims and places legally binding targets on sector areas, as well as compelling local authorities to devise their own climate action plans, to be updated every five years.

At the announcement of the Plan the Tánaiste, Leo Varadkar TD said: “I am confident that the decarbonisation of the economy will present significant opportunities for Irish business, for trade and for new employment.”

Renewable energy targets

One of the biggest opportunities for Irish businesses and investors is in renewable energy, such as wind power. With Ireland having a target of producing 70% of its energy from renewable sources by 2030, there is great interest in various methods of producing power from the elements, especially wind.

Given Ireland’s geography, wind power is a plentiful resource with strong winds coming in off the coast, and this has been increasingly harnessed over recent years as the Irish government has looked to renewable energy sources to meet their climate emission targets.

Currently, electricity produced by wind farms accounts for nearly 40% of Ireland’s energy and has cut the country’s CO2 emissions by about four million tonnes. Using wind power also helps to make Ireland’s energy supply more secure as it reduces the need to import fossil fuels.

The importance of wind to the Irish economy – now and in the future – was highlighted in a report produced by KPMG for Wind Energy Ireland, ‘Economic Impact of Onshore Wind in Ireland’, [windenergyireland.com/images/files/economic-impact-of-onshore-wind-in-ireland.pdf] published in April.

It found that Ireland’s wind farms currently support more than 5,100 jobs directly and through the supply chain, and this could rise to more than 7,000 by 2030.

Wind power is already worth €410 million per year to the Irish economy, with much of this centred in rural Ireland. By 2030, it is anticipated that this will rise to €550 million.

In addition, wind farms make a significant contribution to commercial rates. County Councils received more than €45 million from wind farms last year and by 2030 this is expected to rise to €90 million. In seven counties, in excess of 8% of the commercial rates budget comes from wind farms, and in Tipperary it accounts for 15.5% and 22% in Leitrim.

Communities also potentially stand to benefit from up to €25 million in annual community benefit payments as new wind farms are built.

Acquisitions

With the development of the sector, it is unsurprising that there has been plenty of acquisition activity in the wind sector in recent months, with several huge deals completing.

Dublin-based renewable investment company Greencoat Renewables has been particularly active during the past 12 months. In October 2020, the company raised €125 million in an oversubscribed share placing to Euronext in Dublin and AIM in London. At the time, it was said the money would go towards acquisition opportunities.

Greencoat made good on that commitment within a month. On October 23, it was announced that the company had acquired An Cnoc Wind Farm in County Tipperary. The wind farm comprises five Enercon E70 turbines that have been operational since March 2018. An Cnoc Wind Farm’s revenue are contracted under the REFIT [Renewable Energy Feed-In Tariff] 2 scheme, providing a long-term guaranteed minimum floor price for the electricity generated until 2032. Enercon will manage the operations and maintenance contract.

This was followed in December with an agreement to acquire the Cloghan and Taghart wind farms from Statkraft under a forward sale model for a combined cost of €123 million. At the time, building work on these wind farms had yet to start, but was set to soon after and they are expected to be operational by late 2022, when the acquisition will complete.

Cloghan (37.8MW) is located in County Offaly, and Taghart (25.2MW) is located in County Cavan. Statkraft will manage the construction of each wind farm and will continue to provide trading and operational management services for the wind farms once they are operational.

In February, Greencoat agreed to acquire the Cordal wind farm in County Kerry from Cubico Sustainable Investments.

The wind farm comprises 28 3.2MW GE turbines, which have been operational since May 2018. As with previous deals, the wind farm’s revenues are contracted under the REFIT 2 scheme. GE will manage the operations and maintenance contract following the deal.

Also in February, Greencoat expanded its operations internationally when it agreed to acquire the Kokkoneva wind farm in Siikalatva, Finland from Abo wind for about €60 million. As with other deals, this has been structured as a forward sale, which will only complete once Kokkoneva is fully operational. This is expected to be in the second quarter of 2022. The 43.2MW wind farm is currently under construction.

The deal is part of Greencoat’s European expansion strategy. It comes after Greencoat bought three French wind farms in summer 2020.

Overseas companies have also been targeting Irish wind power assets. Danish wind power company Orsted moved into the European onshore market in April with an agreement to acquire Brookfield Renewable’s Ireland and UK onshore wind business, Brookfield Renewable Ireland (BRI) [orsted.com/en/company-announcement-list/2021/04/2211398]. The deal values BRI at €571 million, although the final value will be subject to customary adjustments.

BRI, which is based in Cork, develops, owns and operates onshore wind farms and has 389MW either operational or being constructed, with another 149MW in advanced development and a pipeline in excess of 1GW in Ireland and the UK.

Investing in Irish wind power

There are various ways that investors can invest in Irish wind power companies. These include investing through investment management companies with expertise in renewable energy or through private equity vehicles.

Various wind power companies are also publicly quoted on stock exchanges including Euronext, which provide opportunities to buy up stakes in businesses.

In addition, there are company acquisition opportunities, but these can run into the hundreds of millions of euros, as the above examples show.

Irish wind power sector going forward

With the Irish government’s focus on decarbonising the economy in the coming years, especially with power generation, wind power is going to be at the forefront of that. As a result, any investment should be a good proposition that will deliver positive returns over several years. Some wind power assets are part of the REFIT or RESS [Renewable Energy Support Scheme] meaning that operating companies are paid a minimum price for the energy, giving stability to income.

As Ireland moves towards 2050 and its targets to decarbonise the economy, there are going to be more investment opportunities in the coming years.