Renewable energy project acquisitions continue to slow

Under a “higher for longer” interest rate environment, renewable energy project M&A have shifted away from the “scattershot” approach of a formerly cheap capital environment to a more cautious approach, said a report from LevelTen Energy.

March 4, 2025 Ryan Kennedy

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Interest rates in the North America and Europe are expected to remain higher for a sustained period, and while some moderate cuts may occur throughout the year, the market’s consensus is that the days of cheap capital are behind us.

This has led to a strategic shift in merger and acquisition (M&A) activity in the renewable energy industry, as buyers focus on late-stage and de-risked projects, turning away from a “scattershot” approach, said a report from market intelligence firm LevelTen Energy.

“The era of rapid pipeline growth fueled by favorable market conditions has given way to a more cautious and strategic approach focused on portfolio optimization and risk management,” said the report. “Buyers are prioritizing latestage projects with greater development certainty and showing a strong preference for bilaterally sourced deals over competitive processes.”

LevelTen said buyers are narrowing their geographic focus to markets they are more comfortable operating in. Volume in 2023 and 2024 for M&A activity has come down considerably from the record-breaking years of 2021 and 2022, when capital was inexpensive. The report noted M&A activity increased marginally in 2024 over 2023.

Project developer fees and developer risks for projects in North America used to follow more linear trajectories for the development process. LevelTen said it now sees lower development fees for early- and mid-stage projects, as risks have grown due to higher interconnection costs earlier in the project development process. Buyers have now maintained a “laser focus” on late-stage projects to fill gaps in their project pipelines, further reflecting the “quality over quantity” approach.

“Early-stage projects, with less development certainty, must represent increasingly compelling opportunities to pique investors’ interest,” said the report.

The cautious approach has further been exacerbated by regulatory uncertainty under a change of administration as clarity around costs related to tariffs, the availability of tax credits, federal loan and grant programs, and other challenges persist.

“Project costs and timelines have continued to increase, making it more challenging for projects to pencil,” said LevelTen Energy.

The firm said it expects moderate growth in M&A activity in the first half of 2025 as the market continues to recover from rate related whiplash. This growth is dampened by regulatory uncertainty in the U.S., as the market awaits the outcome of the budget reconciliation process and the fate of Inflation Reduction Act tax credits. LevelTen said it expects the market to heat up in the second half of the year as it gets more clarity on the regulatory environment.

“Despite potential policy headwinds, the market is ready to move forward — especially in light of expanding opportunities related to surging electricity demand across the U.S.,” said the report.

Though the market has become more cautious, solar capacity continues to grow. Solar, batteries and wind energy are expected to make up 93% of U.S. capacity deployments in 2025, according to the Energy Information Administration.

“Even accounting for current development timelines, clean energy assets have a faster path to commercial operation than nuclear, and the natural gas supply chain and workforce have withered in recent years, adding challenge to re-energizing the economics of building new gas generation,” said the M&A report.

Despite the headwinds of higher rates, interconnection costs, permitting delays, and regulator uncertainty, the tailwinds of rising electricity demand, decarbonization goals, and energy security keep the fundamental drivers of growth for renewable energy strong, the report concluded.

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