What Recurrent’s latest raise tells us about the state of clean energy

In late January, solar and storage developer Recurrent Energy announced a $500 million equity investment from BlackRock’s climate infrastructure arm. The investment, which accounted for 20% of the developer’s total shares, will help Recurrent transition from pure developer to a developer and long-term owner and operator in the United States and Europe, the companies said.

It’s a move that suggests a shift in both macroeconomic conditions and market expectations for the coming year — and nods to the increasing value of storage.

• The top line: At the moment, market conditions mean that developing renewables projects is expensive, which also makes them harder to sell. But it’s looking likely that interest rates will soon decline, so developers may be eyeing soon-to-be low-cost financing as an opportunity to bring renewable projects onto their own balance sheets.
• The current take: Sylvia Leyva Martinez, a power and renewables analyst at Wood Mackenzie, said that “having more control of the asset from development all the way to operations brings more stability to revenues” for developers like Recurrent. “To observe the revenue that Recurrent is forecasting, the best way to do it is to operate the asset themselves,” she added.

A number of factors — especially high upfront interconnection and capital costs, combined with supply chain volatility — are making it more difficult for developers to sell renewables projects, Leyva Martinez told Latitude Media.

However, she added, Recurrent’s move bodes well for the market overall. Pushing to bring assets into a balance sheet is a different way to approach investors, she said — one that can also ensure the continued growth of renewables, and more profitably attract capital.

But don’t expect to see a mass movement of developers looking to own their projects — not all developers have access to the type of capital it takes to add in project operation and ownership. 

“That would require a steep learning curve for other types of developers, and even changing their portfolios to include more storage,” Leyva Martinez said.

Recurrent’s storage portfolio, though, makes it well-positioned to profit from owning and operating renewables projects. In today’s saturated solar market, for example, the best way to truly optimize and consistently sell energy at a higher value is to operate storage assets directly, Leyva Martinez added: “You’re not banking on someone else’s charge and discharge cycle to offer the returns that you’re expecting.”

Jacob Susman, a former renewable energy developer and investor who has since pivoted to hydrogen, pointed to a slew of recent deals that illustrate the evolution of a renewables project developer. For instance, Canada Pension Plan Investment Board acquired Pattern in 2019; private equity firm Ares Management acquired a majority stake in Apex Clean Energy in 2021; and Blackstone made a $3 billion equity investment in Invenergy in 2022. To get to the point where they can raise that kind of capital, developers need to be churning out multiple projects every year, Susman said.

And as project-level returns for large-scale solar decrease, bringing down capital costs becomes essential to that level of sustained production.

“Often the way to the lowest price is to have the lowest cost of capital,” Susman said. If interest rates are heading down, then Recurrent’s ability to raise low-cost pension money, for example, should help it compete against bigger players.

“With the discussion around how interest rates may have peaked and are on the way back down, you might think, particularly in the instance of those big global pension funds, that the implied cost of capital with which they would value somebody like Recurrent, is probably looking pretty attractive,” Susman added. 

“They’re probably looking at that abundant, and hopefully soon-to-be low cost private equity and pension money and saying, ‘it’s a good time for us to have our own balance sheet, to try to compete with the bigs.’”