The cost of developing a project became a very expensive endeavor in 2024 as the aftermath of FERC Order 2023 resulted in all of the major independent system operators (ISOs) assessing a series of interconnection fees and transmission upgrades.

The cumulative effect was certain developers seeking to sell projects much earlier in the process, while Independent Power Producers (IPPs), also found themselves rationalizing their portfolios through sell-downs, including both operating assets and projects.

Finally, investors, armed with billions of capital, find themselves at the crossroads of what to do next as pipeline valuations went south, as did return expectations, amidst these delays and added expense.

This created a gap in the capital markets for both projects and platforms.

Projects

There remains a big pool of investors for clean energy assets, but with no development appetite, and are taking assets once completely de-risked. There also remains a big pool of developers, who have capital demands faced with soaring costs.

Added into this, as of late, is the uncertainty around tariffs, and particularly how it could impact equipment chain costs with a new administration coming in.

“It really creates a population of haves and have nots in terms of developing grid-scale renewable projects,” said Stephen Humes, co-leader of Holland & Knight’s renewable energy team in an interview with NPM, adding that there is “a population of developers struggling to survive given the costs associated with advancing and de-risking projects.”

For the haves, though the system, has become much more efficient, thanks to both the Inflation Reduction Act (IRA), the rise of private capital and accelerated demand for flexible power.

The overall tax equity market for clean energy is expected to double in 2025, as developers have been able to engage both traditional tax equity partnerships and the transfer market as a result of the IRA. The combined traditional tax equity partnership and transfer totals are expected to exceed USD 40bn in 2025, where traditional tax equity partnerships were in the USD 20bn-USD 22bn range in previous years.

“We are not seeing irrational exuberance from the capital markets around sustainability, but we are seeing significant interest for investments to support strong projects and platforms,” said Conor McKenna, senior managing director at investment bank CRC-IB, whose bank has advised on USD 3.84bn in 2024 on debt financings and USD 4.75bn on tax equity/tax credits transfer deals.

Marrying private capital with clean energy projects had been more of a tricky wicket a couple of years ago when project lifecycle costs were more efficient. However, the capital gap which has emerged has created opportunities such as a USD 288m preferred equity investment with funds affiliated with Blackstone Credit & Insurance to support a six-project portfolio across two states with Pine Gate Renewables.

In a follow-up interview with Pine Gate’s director of project finance, Meghan Comiskey told NPM that the six projects were backed by corporate offtakes for 100% of capacity.

In a separate interview with NPM, the new head of North America for private credit platform for Infranity Paul Colatrella supported this concept by saying they be “looking to deploy capital in building projects, some late-stage development risk and strong sponsor support and a clear line of sight of energization date.”

Amongst the drivers for new project development continues to be older thermal retirements, coupled with state renewable energy goals and accelerated by data centers, and how they choose to power their facilities. This has resulted on multiple occasions, utilities also adding greenfield natural gas projects into the mix though.

Adding to the load in 2025 and beyond in future years, includes a growing clean energy supply chain and direct air capture projects, such as 1Point5’s Stratos facility in Ector County, Texas which is expected online in 2025, according a research note from Deloitte.

Platform investment

The rising costs and elongated lead time on projects have negatively influenced platform sales.

“For infrastructure funds, if you lose a year of return, due to development delays, its problematic,” said Everett Currier, a managing director at Lincoln International, adding that future investment dollars are likely to avoid platform investments heavy on early-to-mid-stage development because the GW of “early-stage pipeline adds years of development risk and does not promote incremental platform value at the same level as years past.”

And the next generation of capital deployment is ready, notes Currier, as the likes of TPG Rise, I Squared Capital and KKR, continue to raise billions of dollars. On the middle market tier, the EnCap Investments completed fundraises on their recent energy transition funds.

Predictably, platforms like BP’s onshore wind platform and National Grid Renewables have attracted the most attention on the auction front with its strong track record, operating assets and a pipeline behind it, as they both resolutions across the 1H25.

There also have partnerships such as the one announced last month where Brookfield acquired the option to obtain late-stage projects being developed by SunEnergy1, with options to acquire more. Or the odd tuck-in such as Atlantica Sustainable Yield plc, now a portfolio company of Energy Capital Partners, announcing an acquisition of a platform, which owned 1.1 GW of solar and wind projects under development in MISO and SPP.

“We’re also anticipating more private equity investors across the middle market looking to back teams with successful history in the space that have been leaving larger shops,” said Aaron Klein, also a managing director at Lincoln.

In the past, this has included Encap Investments launching Linea Energy, led by former Cypress Creek Renewables commercial head Cassidy DeLine as its CEO, amongst other effort, and Hull Street Energy’s investment in upstart storage developer, Flatiron Energy, helmed by former ENGIE storage executives, amongst other efforts.

Both Lincoln executives think a big test of the market is coming at the distributed generation level where the publicly-traded Altus Power finds itself at the negotiating table with multiple parties and that resultant return, if executed, will impact other deals in that space, such as Brookfield’s efforts to spinoff Luminance.

*This story was originally published exclusively for NPM subscribers.

 NPM US (New Project Media) is a leading data, intelligence and events company dedicated to providing business development led coverage of the renewable energy market for the development, finance, advisory & corporate community.