Investors find their “honeypot” in early project development

Investing in renewable energy has taken huge leaps forward during the past few years. Nevertheless, this form of investing still remains relatively unfamiliar to many of us. I have compared it to the lifecycles of new rental housing development, because the different development stages of the two are quite similar.

As in housing development, renewable energy projects also start with planning and licensing, then comes the building phase, and finally, the operator sells energy and maintains the energy plant. Profitability is comparable as well. The engineering effort in the early design and licensing phase has a good return on equity[1] both in real estate development and energy development alike. Even the risks are comparable. Real estate developers and renewable energy developers both must have several projects in their pipeline, because typically, many of the projects never come to actual execution. A continuous high-quality pipeline is the prerequisite for profitable business in the long-term.

There are funds and investors that invest in all the phases of the real estate business while some invest in certain phases only. It is the same with energy investments, a good example of which is provided by us – Korkia. Earlier, we invested in all the phases of the energy business, but for quite a while now, we have focused on the early development phase. Why is this?

The most important bottleneck in the energy transition is not money but the availability of good projects

There is more capital available than there are investment opportunities, which has led to high prices being paid for completed renewable energy plants. On the other hand, the readiness for risk-taking among the biggest investors buying these plants has not risen to the level in which they would join, en masse, the early project phases. Understanding both the local conditions and the energy market in its entirety is highly attractive now.

At Korkia, we have come to see that our long experience in this field is of greatest use in the early phases and in cooperation with project developers. This joint venture approach provides us with a competitive edge by combining market expertise of the local team and the international expertise and networks of the Korkia team. We bring about the most substantial impact – economically as well as in terms of the ecological footprint – by investing capital in project development.

To come back to the building industry: the prices of building and building materials have risen significantly, but especially good building sites are now worth a ton. How have energy projects been impacted by the enormous demand combined with the challenges experienced in supply chains? The costs during the building phase, in which Korkia and its investors are no longer involved, have risen 20–30%, and the prices of operational green energy plants are at record highs. However, for those investing in development phase projects, the opportunities are juicy, as we estimate that the price of ready-to-build projects has gone up by over 50% during the past year[2].

There are still plenty of lucrative, profitable development projects available for our investors.

You can invest in a development phase project by investing into the fund Korkia Uusiutuva Energia Ky. This fund is open for investments and already has over 43 million euros of capital commitments (21 September 2022). You will find more information about this fund at https://www.korkia.fi/uusiutuva-energia-rahasto/.

Would you like to take a better look at this topic? Jussi Lilja and Otto Pöyry appeared in the #neuvottelija-podcast to discuss investing in renewable energy! Listen or view here.

Sources:

[1] Kannattavimmat insinööritoimistot Suomessa [Translation:The most profitable engineering companies in Finland] | The magazine Tekniikka&Talous (tekniikkatalous.fi).

[2] Korkia market survey 16 September 2022.