Funding for Green Power: RWE Brings KKR on Board, NextEra Bets on Storage – RE Royalties Finances Smaller Projects

RWE: Gigawatt expansion and private equity partnerships

Essen-based group RWE is setting the pace in Europe. On November 11, RWE reported adjusted EBITDA of EUR 4.575 billion for the first three quarters, an increase of 35% year on year. The group expects to reach the upper end of its full-year guidance. In the first nine months of the year, RWE invested a net EUR 10.7 billion and is currently building new facilities with a capacity of 13.5 GW worldwide. To reduce net debt to around EUR 12 billion by year-end, the company is sharing large-scale projects with partners. RWE will operate the British offshore wind farms Vanguard West and East, with a combined capacity of 2.8 GW, in a joint venture with financial investor KKR, with each holding a 50% stake.

NextEra Energy: US growth and structural bottlenecks

In the US, NextEra Energy is showing comparable momentum. The group is the largest US operator of wind, solar and storage facilities. In the third quarter alone, the development division added 3.7 GW of new projects to its backlog, of which 2.4 GW is battery storage. The situation is different for smaller project developers: in the US, they often wait years for a grid connection, which is why energy regulator FERC has reformed the process. For projects in the single-digit to low double-digit millions, the due diligence effort is also often not worthwhile for major banks.

RE Royalties: Revenue participation for smaller projects

This is precisely where RE Royalties comes in. Instead of acquiring equity stakes, the company provides growth capital – usually in return for a share of the facilities' future gross revenues, sometimes also as a loan. For independent developers, this offers the advantage of gaining rapid access to capital without giving up their own voting rights. Because the participation is directly linked to revenue, rising operating costs at the facilities do not directly affect RE Royalties. The portfolio comprises over 100 revenue participations in solar, wind, hydropower, biogas and storage facilities in North America, South America and Asia.

Recent transactions show what this looks like in practice. In October, RE Royalties acquired a revenue participation in nine solar installations on the roofs of Philippine shopping centres, with a combined capacity of 14.2 MW, for USD 1.5 million. The installations are already operating, with payments made quarterly. Partner Singapore Solar also has projects totalling more than 700 MW in the pipeline in Southeast Asia. In the US, RE Royalties has so far invested USD 4.8 million in 16 smaller solar projects by developer Solaris Energy. A non-binding letter of intent (LOI) provides for up to USD 67.5 million for around 100 further projects. A case from Wisconsin shows the model's lasting effect: a biogas developer has repaid a USD 4.6 million loan in full, yet RE Royalties will still receive 4% of the capital deployed annually for 10 years.

Green capital and strategic review

To serve its project pipeline, RE Royalties needs access to debt capital. In early November, the company launched a private placement of green bonds worth up to CAD 5 million. The five-year securities offer investors a fixed annual interest rate of 7.5%. The financing is secured by the company's existing participations and loans granted. The offering is accompanied by warrants that could provide the company with additional equity capital in future. RE Royalties is currently reviewing potential investments of around CAD 200 million. In March, the board launched a process to review strategic alternatives, advised by PwC Corporate Finance, ranging from partnerships and co-investments to a sale of the company.

Conclusion: Large and small financiers complement each other

The energy market is increasingly splitting into two camps. RWE shows that even large groups share billion-euro projects with financial partners, while NextEra is driving the expansion of battery storage in the US. RE Royalties, by contrast, occupies the niche of smaller projects, where traditional banking reaches its limits. Revenue participations offer smaller developers an alternative to selling equity stakes. At the same time, the model entails risks for RE Royalties: the company relies on continuous refinancing, and its reported net losses require close monitoring. RE Royalties' shares are currently a speculative investment due to the company's low market capitalisation and the pressure to expand. Nevertheless, the business model and dividend policy are certainly intriguing.