Feb 19 - Press and Journal, The Aberdeen (UK)

Bank of Scotland Corporate took its first steps to becoming a leading investor in the renewable energy sector in 1993 and has had a front-row seat in witnessing the huge growth of the industry both in the UK and internationally.

In 2003, the bank's energy team saw key developments in the industry acting as the foundation for the sector, building momentum with the first UK onshore wind portfolio finance providing pounds330million of funding to RWE.

Bank of Scotland's energy and environmental finance team has financed more than 4,200MW of renewable energy projects to date.

Historically, the majority of finance in the sector has been provided by a combination of equity and non-recourse financing.

However, as trends showing the growth and development of companies' M&A activities are becoming apparent, banks will have to respond with the provision of corporate and leveraged products to complement growth.

Climate change concerns, coupled with record high oil prices and increasing Government support, are proving to be strong market drivers - fuelling the rates of investment in the renewable energy and energy-efficiency industries.

In 2007, strong global market growth manifested in more than pounds20billion of M&A activity, representing a year-on-year increase of 40%.

The split of M&A activity across the sub-sectors of the renewable energy industry mirrors the levels of development which the technologies have undergone en route to commercialisation.

The more established sectors of wind, solar, biofuels and biomass experienced the majority of M&A-related financing in 2007, with the wind sector, in particular, seeing ground-breaking transactions.

In the European arena, large-value M&A activity prior to the start of 2007 was predominantly being driven by specialist financial developers who quietly built up portfolios of operational assets by acquiring projects at various stages of development.

The nature of M&A activity has recently moved into new territory with the arrival of major utilities as aggressive purchasers of major operational assets and companies engaged in the sector.

Headline transactions such as Scottish & Southern Electricity's recent acquisition of Airtricity's European businesses and International Power's acquisition of Trinergy have moved valuations of portfolios significantly upwards.

The utilities have observed the industry's development and, while assets such as wind are not always an ideal fit for generative needs, asset acquisition will go some way in meeting obligations under legislative frameworks to reduce greenhouse gas emissions.

The continued level of interest in M&A activity from the major utilities is set to continue as they continue to seek, expand and diversify their renewable portfolios.

Bank of Scotland's energy and environmental finance team expect the pattern of wind asset M&A to be repeated in the solar market.

There has been substantial increase in the number of large-scale solar farms being brought into operation in Spain due to proven solar technologies, and the strong subsidy regimes encourage developers to diversify into the sector.

By combining wind and solar assets through a controlled acquisition strategy, a balanced portfolio can be built with reduced generation variability.

It is not just the assets in the wind and solar sectors that have witnessed an upturn in attention. Manufacturing capacity in both of these areas has also come into range for potential purchasers, with high-profile deals in both arenas.

The acquisition of Re-Power by Sulzon has created a powerful international competitor in the wind turbine manufacturing sector to compete against market leader Vestas.

Overall, Bank of Scotland foresees that the acquisition finance opportunities that are emerging in the European renewable industry will be of great interest and are potentially a major business stream for financial institutions.

Sarah Queen is with Bank of Scotland Corporate's energy and environmental finance division

(c) 2008 Press and Journal, The Aberdeen (UK). Provided by ProQuest Information and Learning. All rights Reserved.