Renewable Energy Investment Banking: How to Make Greens by Going Green

If there is one sector that has attracted even more hype than technology and TMT, it might just be renewable energy investment banking.

The good news is that if you can get in, the group has many positives: Diverse deal activity, a generalist technical skill set, and many exit opportunities.

The bad news is that despite these positives, it’s still highly dependent on the government and overall macro conditions – despite claims to the contrary.

But before jumping into the overall advantages and disadvantages, let’s start with the verticals and how banks are set up:

What is Renewable Energy Investment Banking?

Renewable Energy Investment Banking Definition: In renewable energy investment banking, bankers advise companies in the solar, wind, biofuel, storage, battery, smart grid, electric vehicle, hydrogen, hydroelectric, and carbon capture verticals on equity and debt issuances, asset deals, and mergers and acquisitions.

Yes, that’s a mouthful – because the renewables sector consists of many verticals that are only loosely related.

Depending on your area, the deals you work on could resemble transactions in oil & gas, power & utilities, technology, chemicals, or industrials.

Because it is difficult to find a unifying technical theme, banks classify their renewable energy teams differently.

For example, at Goldman Sachs, it’s part of the “Natural Resources” group, along with chemicals, metals and mining, oil & gas, power, and infrastructure.

But at many other banks, it’s part of the Power & Utilities, Utilities & Renewables, or Power & Renewables teams (e.g., Barclays, MS, JPM, Citi, BofA, RBC, Guggenheim, Lazard, Nomura).

Adding to the confusion is that some banks, such as Citi and Nomura, have dedicated teams that are separate from their existing coverage within power & utilities (e.g., the “Clean Energy Transition” (CET) team at Citi and Nomura Greentech).

Some banks also classify certain verticals differently from others.

For example, batteries and electric vehicles (EVs) might be put in the tech or industrials teams, under the argument that firms resemble semiconductor or traditional auto companies.

Finally, many renewable energy debt deals take place within Project Finance teams at banks – but Project Finance and corporate finance are very different!

The bottom line is that you must pay close attention to your group’s deal flow rather than assuming all teams operate similarly.

How to Break Into Renewable Energy Investment Banking

Since renewable energy is broad but not specialized, you can get in from almost any background.

Some knowledge of solar and wind assets, batteries, etc., certainly helps, but it’s not like real estate, mining, or oil & gas, where deep sector expertise can be a huge benefit.

So, you can get in right out of undergrad, and if you’re already working, you can move in from virtually any related group.

The same criteria as always apply: High grades, a good university or business school, previous finance internships, and a good amount of networking and interview prep.

In terms of technical interview questions and general topics, you should know:

• The fundamentals of solar and wind assets (see below) and a bit about the other verticals, especially biofuels and storage/batteries.
• A recent deal in the sector, ideally one your target bank has advised on.
• Operating metrics and valuation multiples, especially for the assets and companies that are the most different (see below).

What Do You Do as an Analyst or Associate?

Although the renewable energy sector is diverse, deal activity is not that diverse.

Per FTI Consulting, solar, wind, and “portfolio” (mixed asset) deals account for 60% of renewable M&A activity in the U.S.:

 

In practice, most of this M&A activity consists of asset acquisitions because buying individual solar plants and wind farms is common.

So, even if you’re advising entire companies, you must still be familiar with asset-level modeling and valuation and how an entire portfolio works.

For growth-stage companies, you will see plenty of equity offerings: IPOs, SPACs, PIPEs, and follow-on issuances.

Since equity deals are highly dependent on market conditions, deal flow tends to be much more uneven than in asset-level M&A.

A good example is the 2020 – 2021 period, when SPAC activity went vertical, and plenty of renewable energy companies used SPACs to go public.

But the market crashed the next year, and you stopped hearing about renewable energy SPACs.

Debt deals also happen, but many are in a Project Finance context, meaning they’re outside the purview of the renewables IB team.

For example, if a renewable developer wanted to raise debt to build a new offshore wind farm as a separate entity, it would fall under Project Finance.

The renewables team still works on corporate-level debt deals, but these are less common than asset-level transactions.

Renewable Energy Trends and Drivers

Like all sectors, renewable energy is driven by a mix of macro and micro factors:

1. Energy Demand – Rising energy demand benefits the entire sector because countries need new energy sources, and renewables have become increasingly competitive with fossil fuels now that prices have fallen. Growing populations in emerging markets and rising demand from data centers, AI, 5G, and other computing tasks also contribute.
2. Commodity Prices – Higher oil and gas prices encourage renewable development, but it’s complicated because renewables also depend on other commodities, such as lithium, iron, copper, and nickel for batteries. If oil and gas prices go up and industrial metal prices fall, renewables benefit, but the effect is harder to predict if prices move in different directions.
3. Technological Advances – Both solar panel and wind turbine costs have fallen over time due to manufacturing efficiencies, but they haven’t necessarily become more productive (i.e., they don’t generate much more electricity from the same number of panels or turbines). The holy grail is to increase productivity, reduce prices, and improve storage options, but it’s almost impossible to accomplish all three at once.
4. CapEx, Operating Expenses, and Inflation – Generally, renewable assets such as solar and wind tend to cost a lot upfront but operate at very high margins afterward. Therefore, they’re sensitive to the initial construction costs (materials, labor, and financing) but are not quite as affected by long-term expense inflation as other sectors. Assets with lower operating margins (e.g., large offshore wind farms) and ones with complicated decommissioning requirements tend to see more of an effect from rising expenses over the long term.
5. Interest Rates and Monetary Policy – Solar and wind assets benefit from low interest rates because they tend to offer high yields; when interest rates are at 0%, buying a wind farm yielding 10% on equity is quite attractive. But this is less appealing when interest rates are at 5% or 6%. Total construction costs (including financing) also fall with lower rates and looser monetary policy, and upfront CapEx is far higher than ongoing OpEx for most renewables.
6. Government Policies, Taxes, and Regulations – How much is the government subsidizing EVs? Is it encouraging utility companies to source their energy from renewable producers? How do tax credits work? How easy is it to get a permit for a new solar, wind, or biofuel asset? Can you understand even 1% of the Inflation Reduction Act without falling asleep reading it?

Renewable Energy Overview by Vertical

I will now attempt to summarize the main verticals without turning this article into a novella:

Solar

Representative Public Companies: Canadian Solar, First Solar, GCL-Poly Energy, JA Solar, JinkoSolar, LONGi Green Energy, Risen Energy, SMA Solar, SolarEdge, Sunnova, SunPower, SunRun, Trina Solar, Xinyi Solar, and Yingli Green Energy.

You could add plenty of diversified companies (e.g., solar + wind + batteries) to this list, but we’ll address those in another section.

The basic division here is between manufacturing, development, and service companies.

Manufacturing companies (most of the Chinese ones in this list) are like semiconductor or industrial companies, but with lower margins and even more cutthroat competition.

The key drivers include the growth in new solar installations worldwide and their products’ raw material and labor costs.

Solar developers are more like power producers in the power & utilities sector, with the key drivers being the CapEx required to build new plants, the capacity of each plant, and the Power Purchase Agreement (PPA) terms, including the contract length, electricity rates, and the allowed rate increases.

Here’s an example operational snapshot:

 

You won’t necessarily model each plant or site separately, but you might group them into similar regions or contract types and forecast the revenue, expenses, and financing costs for each one.

Finally, services companies are like other professional services companies but have different macro drivers (see above).

Many “services” in this area involve residential installations of solar panels.

Quite a few solar companies offer both panel manufacturing and installation services, and some even develop and hold plants, so you need to analyze each segment separately.

Wind

Representative Public Companies: CS Wind Corporation, Dongfang Electric Corporation, Inox Wind, Nordex, Northland Power, Ørsted, Sany Renewable Energy, Siemens Gamesa Renewable Energy, Suzlon, Vestas, and Xinjiang Goldwind Science & Technology.

There aren’t that many pure-play independent players in this vertical, but there are some huge companies that just happen to manufacture wind turbines and related parts.

There’s a similar split as in solar, with some companies focusing on manufacturing wind turbines (Vestas) and others focusing on development and generation activities (Ørsted).

The key drivers are similar, but wind assets tend to be bigger, riskier, and more expensive than solar ones – especially in the offshore wind segment.

You can see this if you look at the valuation multiples paid for solar vs. wind assets worldwide:

 

Offshore wind is even more complex and expensive to develop than onshore wind, which explains the higher median multiple but also the much wider range of values here.

Because of wind turbines’ size, “residential installations” don’t happen unless your residence is a seaside mansion.

This means services companies don’t exist in quite the same way; most of the companies servicing wind turbines perform maintenance activities and are separate divisions of manufacturers like Vestas, Siemens, or GE.

The key drivers for wind turbine manufacturers are raw material and labor costs, demand for new wind farms, and overall competition and market share.

The drivers for wind developers and power generators are the same as for solar, but the risks, CapEx, and ongoing OpEx are all greater.

You’ll still see the same analysis of individual assets owned by companies, as shown below:

 

Biofuels and Renewable Natural Gas (RNG)

Representative Public Companies: Archer-Daniels-Midland Company (ADM), Borregaard, Chevron Renewable Energy Group, Cosan, Drax Group, Green Plains, Neste, Raízen, REX American Resources, Valero, and Verbio.

You can divide this list into:

1. “Big agricultural and energy companies that also happen to produce ethanol or other biofuels” (Chevron, ADM, Valero); and
2. “Smaller, dedicated companies that focus specifically on biofuels” (everyone else)

Among the dedicated companies, there’s another division: Producers vs. transporters, like the split between Upstream and Midstream in oil & gas.

For a good example, look at this BofA presentation to Green Plains, which was structured as an MLP at the time and treated like a pipeline company in oil & gas.

Key drivers include the company’s overall capacity (pipelines, roads, terminals, etc.), the gathering & transportation fees, and the labor, service, and material costs associated with each “unit” of fuel transported.

The producers in this sector operate more like chemical companies, so key drivers include the cost of the raw materials (biomass in this case), the labor required for the transformation process, and the underlying demand, including contracts set up with key customers.

One common issue in this sector is overpromising and underdelivering to large customers, which has killed companies like Enviva.

Subsidies from the government encourage independent producers to go into this area, but they sometimes overestimate the volumes they can deliver and underestimate their costs.

Renewable natural gas (RNG) is a relatively new entry to this area, and traditional energy companies like it because RNG can use existing infrastructure, such as pipelines and storage assets built for conventional natural gas.

The difference is that RNG is made from organic matter (landfills and farms) and synthetically turned into natural gas that releases no carbon dioxide (or minimal CO2).

This ability to re-use infrastructure explains why energy companies like Chevron and BP have made acquisitions in the space; you can see some of BP’s acquisition rationale for Archaea Energy below:

 

Storage and Batteries

Representative Public Companies: BYD, CALB, CATL, Envision AESC, Farasis Energy, Fluence, LG Energy Solution, NGK Insulators, Panasonic, Samsung SDI, SK On, Sunwoda, Tesla, and Wärtsilä.

This vertical has a ton of overlap with EVs since many of these battery companies also produce EVs.

If their battery production gets out of sync with their EV production, they can buy or sell batteries to other companies.

This space is a cross between industrials and technology because significant R&D is required to develop new materials and improve efficiency, but it’s also very reliant on huge CapEx spending and raw material costs for production.

For the larger companies in this sector, you can expect to see drivers like the total market size, market share, and order backlog – just like you would for a traditional railcar or auto manufacturer.

Companies like Emerson even use these numbers to justify acquisitions like the Open Systems deal:

 

Some consumer-focused companies here also have a subscription element, with customers paying monthly fees to manage their energy.

Electric Vehicles (EVs)

Representative Public Companies: BMW, BYD, Changan, GAC Aion, Geely-Volvo, General Motors, Hyundai, KIA, Li Auto, Mercedes-Benz, MG, SAIC-GM-Wuling, Stellantis, Tesla, and Volkswagen.

This one is arguably not in renewable energy since EVs are a subset of automotive vehicles – which explains why companies like GM, Hyundai, BMW, and Volkswagen are on this list.

But the dynamics are different enough that it’s worth discussing separately here.

Once again, this list is dominated by many Chinese companies, one prominent U.S. company, and legacy auto manufacturers worldwide that have begun to focus on EVs.

Before EVs emerged, the traditional auto market had stagnated in units sold – at least in developed countries.

The growth of this new segment created a lot of excitement, but you still need to consider the overall market when analyzing it.

That means looking at the replacement time frames across all vehicle types (luxury, non-luxury, compact, midsize, SUV, etc.), prices, consumer sentiment, and incentives such as tax credits.

In places like China, much of the EV growth comes not from replacing traditional autos but from brand-new buyers, so you also need to think about developed vs. emerging/frontier markets differently.

This sector is also highly dependent on infrastructure: If there aren’t enough charging stations in your area, good luck getting a lot of EV buyers.

Many companies that do not produce EVs directly but sell parts, software, and hardware operate like tech companies, but with links to all the EV macro drivers.

Diversified Renewable Companies and Other Areas

Representative Public Companies: Adani Green Energy, Atlantica Sustainable Infrastructure, Brookfield Renewable Partners, Clearway Energy, EDP Renováveis, Enphase Energy, GE Vernova, Iberdrola, NextEra Energy, Nextracker, RWE Aktiengesellschaft, and Siemens Energy.

Besides the verticals mentioned above, there are many others within renewable energy: Carbon capture, energy efficiency, geothermal, hydropower, and water tech are a few examples.

(Some people even consider nuclear renewable energy since it does not emit CO2, but I don’t want to wade into that debate.)

But it’s difficult to find dedicated public companies in these sectors, so I’m not breaking them out separately here.

There are a few examples in the Chinese market due to its sheer size (e.g., China Yangtze Power for hydropower), but there aren’t many global companies in these areas.

However, there are plenty of large, diversified renewable companies that operate globally, like Iberdrola, NextEra, and GE Vernova.

These firms do a bit of everything (solar, wind, storage, batteries, and biofuel), and you’d have to break them into segments to do the full analysis.

Renewable Energy Accounting, Valuation, and Financial Modeling

For the most part, very little is “new” here.

If you look at the presentations and valuations below, you will still see standard valuation multiples like TEV / Revenue, TEV / EBITDA, and P / E.

If you want a quick example, here’s a set of “solar service” comparable companies:

 

I would summarize the key differences as follows:

1) New Metrics and Slightly Different Multiples – For example, in addition to EBITDA and EBIT, you’ll also see multiples based on “Capacity” for power producers and, for companies with large portfolios of renewable assets, multiples based on Project Finance metrics like the Cash Flow Available for Debt Service (CFADS). Dividend yields are frequently cited for these types of companies as well.

Here are a few examples:

 

 

2) Asset-Level “Comparables” – Please see the examples above in the solar and wind sections. You often create quick profiles of companies’ energy assets to understand how their capacities, contracts, and other terms compare.

3) Asset-Level Analysis – You need to understand the basics of modeling individual solar/wind assets since you’ll work on many divestitures involving them. These include points like PPA rates, escalation factors, debt sculpting vs. debt sizing, the DSCR, LLCR, and forecasting the CFADS and Cash Flow to Equity.

4) Sum-of-the-Parts (SOTP) Valuation – This methodology is far more common than in other sectors because many companies operate across the entire renewables space.

In terms of technical training, our Project Finance & Infrastructure course and Advanced Financial Modeling course are the most relevant ones:

• The Project Finance course covers 2 solar development models and 1 offshore wind development model.
• The Advanced course has a spin-off case study based on SunPower and Maxeon, along with a valuation for each company and a Sum-of-the-Parts analysis.

Example Valuations, Pitch Books, Fairness Opinions, and Investor Presentations

This list was extremely difficult to compile due to the lack of company-level deals in the sector, but I’ve done my best:

Solar

Sunergy Renewables – SPAC / IPO (Cohen and Houlihan Capital)

• Investor Presentation
• Fairness Opinion (pg. 146)

SunPower / Maxeon – Spin-Off (Centerview and GS)

• Investor Presentation

CBRE and Blackstone / Altus Power – SPAC / IPO (Citi, JPM, MS, and Duff & Phelps)

• IPO Investor Presentation
• Fairness Opinion (pg. 132)

ConEdison / Sempra Solar – Acquisition (CCA, Citi, Lazard, CS, and JPM)

• Investor Presentation

Shanghai Xingsheng Equity Investment & Management Co. / Trina Solar – Acquisition (Citi, Industrial Bank, and Duff & Phelps)

• Deal and Valuation Update
• Fairness Opinion

Wind

Iberdrola / Avangrid – Acquisition (Moelis and MS)

• Discussion Materials and Valuation Presentation – Moelis
• Going-Private Transaction – Investor Presentation

Regal Concord Limited / China Ming Yang Wind Power Group – Acquisition (Kroll Securities)

• Duff & Phelps – Valuation

AEP / Sempra Renewables Wind Portfolio – Acquisition (Wells Fargo, CS, and JPM)

• Investor Presentation

Biofuels and Renewable Natural Gas (RNG)

BP / Archaea Energy – Acquisition (MS and BofA)

• Investor Presentation
• Fairness Opinion

Chevron / Renewable Energy Group – Acquisition (GS and Guggenheim)

• Investor Presentation
• Fairness Opinion

Green Plains Partners / Green Plains Inc. – MPL Buy-In Transaction (BofA and Evercore)

• BofA – Discussion Materials and Valuation
• Fairness Opinion (pg. 60)

Storage and Batteries

NRG / Vivint – Acquisition (GS and JPM)

• Investor Presentation
• Fairness Opinion

Emerson Electric / Open Systems International – Acquisition (Centerview and Lazard)

• Investor Presentation

Electric Vehicles (EVs)

Schaeffler / Vitesco Technologies – Acquisition (BNP, BofA, Citi, JPM, and Lazard)

• Transaction Overview
• Valuation / Fairness Opinion by ValueTrust (pg. 90)

TPG / EVBox – SPAC / IPO (Cancelled Deal) (Nomura, DB, JPM, and Barclays)

• Investor Presentation

Diversified Renewables

Abu Dhabi Future Energy Company / TERNA Energy – Acquisition (Rothschild and MS)

• Investor Presentation

Omega Geração / Omega Desenvolvimento – Subisidiary Mergers (Lazard and Berkan)

• Deal Process Update and Valuation

Canada Pension Plan Investment Board / Pattern Energy Group – Acquisition (BofA, Evercore, and GS)

• Investor Presentation
• Green Bonds Presentation
• Fairness Opinion (Evercore)

Renewable Energy Investment Banking League Tables: The Top Firms

You can get a sense of the top banks by looking at the presentations above, but I’d summarize the market as follows:

Among the bulge bracket banks, BofA, Barclays, Citi, and MS are all quite strong and have advised on many of the largest deals (though MS has more strength in Project Finance).

And yes, JPM and GS also operate in the sector, but they seem to be slightly lower on the ladder than the banks above.

Among the elite boutiques, Evercore and Lazard have traditionally been strong, but Moelis and Guggenheim also have significant deal flow.

In the middle market, Jefferies has recruited some of the top bankers in renewable energy M&A and is expected to do well going forward.

Nomura Greentech (NGT) is also a standout, but the classification is a bit murky, so I’ll mention it without putting it in a specific category here.

Many other MM and “in-between-a-bank” firms work in the space (Macquarie, Wells Fargo, CIBC, TD, etc.), but they are less consistent than those above.

There are also quite a few boutique banks in the space, including Marathon Capital, Onpeak Capital, CRC-IB, Finergreen, Virentis, Ocean Park, Global Power Partners, and Rubicon Capital.

Various European and Japanese banks strong in Project Finance (Soc Gen, BNP Paribas, Santander, Mizuho, etc.) are also active in renewables.

But they do mostly debt/lending deals, not M&A advisory, which may not be what you want.

In terms of geography, the headquarters for many renewable deals is shifting to Houston, with NY as a base for more conventional power deals.

Exit Opportunities

Exit opportunities out of renewable energy investment banking are quite good because:

• The skill set you develop is not overly specialized.
• Many private equity firms and hedge funds invest in renewables or related areas like chemicals, industrials, technology, and power.
• And it’s also possible to take your skills and move into closely related IB industry groups or even join the corporate development teams of companies in the space.

I don’t think the “pigeonhole factor” is too high here, but if you are concerned about it, you could always move into more of a generalist group before aiming for buy-side roles.

Recommended Resources for Learning More

There’s an overwhelming amount of information and news on this sector, but we recommend starting with these resources:

• Mercom Capital – Reports on Solar, Energy Storage, and Smart Grid
• SEIA – Solar Energy Industries Association News
• Energy Storage Guide from the U.S. Department of Energy
• Lazard – Annual Levelized Cost of Energy (LCOE) Report
• NREL – Offshore Wind Energy Market Assessment
• American Clean Power – Monthly Reports
• Canary Media – Industry News
• BNEF – Energy Transition Trends Report

Should You Surf Some Solar Rays into the Renewable Energy Investment Banking Group?

Given the benefits outlined above – diverse deal flow, plenty of exit opportunities, and verticals that resemble other industry groups – there are some very good reasons to join the renewable energy investment banking team.

Many people also argue that renewables will grow faster than virtually any other sector in the global economy, which means even more deals in the future.

But that brings us to the biggest risk factor: All these predictions could be wrong or overly aggressive.

Despite what renewable cheerleaders often claim, the entire industry is very dependent on government subsidies, tax incentives, regulation, and even monetary/fiscal/trade policy.

Yes, solar, wind, and storage costs have decreased over time and become more competitive with fossil fuels, but government actions and policies still play a huge role.

We have already seen a blowback against ESG policies at companies, and it could easily spread into broader areas.

The big “X Factor” here is how much the costs of this energy transition end up affecting the average person.

If they must deal with much higher energy costs, in addition to everything else that has shot up in recent years, expect a lot of pushback and slower adoption curves.

I don’t necessarily think the sector will crash, but it might turn out to be slightly less green than expected – on both axes.