Top 3 SPAC Targets – Solar Power
After a quiet stretch in the SPAC market, we pressed pause on this column. But with deal flow picking up, targets getting more creative, and sponsors back in hunting mode, it’s the right time to bring back one of our favorites: the Top 3 SPAC Targets. Read on to see who we picked for private targets in the solar power generation space.
There has been a recurring theme in many of our Top 3s of late, and that is that the Iran conflict has brought non-fossil fuel energy sources back on the menu. Although the US administration may generally prefer the old oil and gas industry and dislike subsidizing renewable energy, that matters a lot less in an environment where supplies from the former look to be constrained for the foreseeable future.
Energy demand, and specifically electricity demand, is still expected to balloon and now renewable energy sources have an opportunity to fill additional gaps in the mix caused by current events. Out of the various green energy types that have emerged in recent years, solar has seen arguably the greatest advancements in performance and cost of materials to keep it competitive even as various incentives sunset.
It is also adaptable and scalable in a number of ways that other generation methods struggle to mimic. As such, there are a number of ways that SPACs could play the solar market both in the US and abroad.
Cypress Creek Renewables
Cypress Creek is by some measures the largest private solar and storage developer in the US and along the way it has honed its approach through about 850 fully commercialized projects in 22 US states.
It typically manages the entire lifecycle of these projects from initial research and land acquisition through construction, operations and eventually end-of-life decommissioning. But, it has also not been above adding to its portfolio inorganically, acquiring a 2.5 GW solar project with 2.9 GWh of storage just last month.
As of April 7, the company was managing a portfolio of about 3 GW in other projects that it has held onto after commercialization plus 4 GW more under a subsidiary and it has about 15 GW in its pipeline. It has been able to fund that constant pipeline through a mix of debt and equity raises, but it could be approaching a point where a recapitalization would make sense.
After a flurry of expansion moves before and through the pandemic, agreed to be acquired by its existing institutional investors HPS Investment Partners and Temasek, which converted their investments into 100% of its common equity in 2020.
One year later, these new owners flipped Cypress Creek on to EQT Infrastructure for undisclosed terms. At the time, Cypress Creek’s operating portfolio was about half the size and so the timing could be right for EQT to log its own gains from the past five years of Cypress Creek’s growth. EQT is also familiar with the SPAC process, having recently invested in the PIPE for Legato III’s (NYSE:LEGT) combination with EV trucking firm Einride.
Avantus
Avantus is in a similar spot as it currently looks to advance an even larger pipeline made up of 65 projects that would generate 24 GW of solar and 75 GWh of storage capacity.
The company has focused geographically on utility-scale projects in the American southwest with its average project size weighing in at about 340 MW. It has forged this aggressive path with about $1 billion in investment from its private equity owners KKR Capital Markets and EIG.
KKR has also been a SPAC PIPE investor, but not since Bridgetown 2’s 2022 combination with Singaporean real estate marketplace PropertyGuru. For KKR, which owns the majority of Avantus, the rationale for engaging a SPAC now would be less about timing up an exit and more about capturing the lightning in the bottle that can be grabbed on the public markets under the current macro conditions.
Solar giants like Nextpower (NASDAQ:NXT) and SolarEdge (NASDAQ:SEDG) are up +40% and +52% on the year, respectively, while the most recent solar de-SPAC, TOYO (NASDAQ:TOYO) has soared +120% since January 1 , last closing at $13.78.
ACES Africa
It’s not only in the US where solar is shining bright, however.
Many countries in Africa have had a particularly difficult transition into the new age of energy as many see their electricity demand increase proportionately faster as emerging economies, but the lack of investment in their infrastructure and power generation has made that particularly tricky to manage.
Solar’s flexibility has made it the most popular choice for solving these challenges – both for the individuals and businesses that hope to fill gaps in the unreliable grids, and the grids themselves. In just one country, South Africa, solar has gone from a negligible portion of the country’s energy supply to a 10% share and rising over about a five year period.
Much of the installations there are being done by ACES Africa, which has backed about 380 projects across seven countries on the continent. Its installed capacity is still dwarfed by its aforementioned American peers at about 140 MW in generation and 50 MWh in storage, but it may have the most white space in front of it.
Along with this smaller project scale, ACES Africa has integrated itself into more urban projects by providing PV solar glass that can generate power via the windows in office buildings. In addition to the white space that this diverse set of projects represents, ACES Africa can also lean on lower labor costs than the US and also cheaper materials as many African nations can get low-cost Chinese panels and components without paying any tariff surcharges.
ACES Africa is itself a subsidiary of its ACES Capital group parent that has managed its funding to this point. But, even its resources are sure to be limited compared to what the public markets could offer. That public capital could also be a valuable tool in rolling up other Africa-based solar peers that have few other routes to a liquid market.