Big UK wind energy companies threat to smaller players

Small wind energy firms could be cheaply taken over as new budgeting for the sector is set to be granted merely to huge companies, placing them in a better negotiating position. Wind sector analysts said that big firms are not willing to pay smaller industry players with premiums for pipeline projects as well.

The unwillingness of big renewable energy players to pay premiums for pipelines is reflected in valuations of small companies. According to Thomson Reuter’s Starmine database, both Renewable Energy Generation (REG) and Renewable Energy Holding (REH) have a 0.8 and 0.7 price-to-book ratio. Arbuthnot analyst David Cunningham said that fund managers want to finance only those small wind energy companies that could generate equity value.

Wind energy companies, along with the solar sector, had suffered from the economic bottleneck during the past 18 months, delaying efforts to make cash-intensive wind parks until the following year due to funding issues. But recent sector activities show that the interest had returned, such as the UK’s Novera Energy takeover bid from private equity-backed Centrica and Infinis’ stake sale in three wind farms to the US-based TCW.

Industry analysts noted that smaller firms are still having hard time availing for funds because they are seen as risky, providing bigger corporations the ability to cheaply snap up their assets. Philippe de Weck, Fund Manager of Pictet’s Clean Energy-P Cap-EUR Fund, informed that many small wind energy companies possess big pipelines, yet lacks the financing. He said that small firms often find themselves being too small to venture alone, placing them into weaker negotiation positions.