Navigating the Renewable Space: An Empirical Study and Comparison of Profitability and Capital Structure in Energy Companies with Key Consideratioins for Statoil New Energy Solutions

Fridtjof Wergeland & Viktor von der Fehr

Student thesis: Master thesis


As 97% of climate scientist believe in global warming, there exist overwhelming consensus that the global energy mix needs to change in order for future generations to survive. Renewable energy investments have however suffered from lack of financial returns leading reluctance to tunnel sufficient capital into the sector. This thesis explores the intersection between pure financial analysis and analysis of the renewable energy space. With this as the backdrop, the authors sought deeper understanding of the actual performance of renewable energy companies, its drivers, trends and opportunities lying ahead in order to provide valuable input for Statoil New Energy Solutions. This thesis analyse renewable energy from numerous angles with several financial tools. To answer the problem statement, annual market data and financial statements for 32 companies have been gathered, some as far back as 1997 until 2016. The extensive data material is structured and analysed through financial statement analysis, which resulted in key metrics, on firm and sector level. To complement the analysis of company accounts authors have explored relevant theory on capital structure and performed an industry analysis of the wind and solar market. Further, a multiple analysis is performed to understand pricing mechanisms and especially to explore investor sentiment towards financing- and capital structure. Finally, corporate finance elements are explored with a qualitative approach in order to reach potential recommendations for Statoil New Energy Solutions. The profitability analysis suggests that renewable energy companies reflect underlying projects with high gross margins, but also that divestments of non-core assets have depressed results lately. Pure renewable companies have more steady margins and earnings due to contracted revenues, and are thus less affected by commodity prices relative to oil & gas and utilities. Leverage is consistently high among firms with high exposure towards renewable energy assets reflecting underlying projects with high debt capacity. YieldCos perfectly mirrors the underlying business as described above, and have been trading at impressing premiums due to lofty growth expectations, which led to the dramatic crash in 2015. The analysis further suggests that the transparency and asset/revenue visibility of pure play renewable firms has been greeted by investors leading to high valuations. Inferior quality and time perspective in financial data on pure play renewable firms generally reduces value of analysis. Finally, we find that staging strategies and capital recycling has been crucial for the strong project IRRs of firms such as Dong Energy and EDPR. Project financing is more utilized in renewable energy projects as banks become comfortable with the risk picture. The choice between project financing and balance sheet financing is however still based on overall company specifics rather than any consensus rules. Understanding the YieldCo model and history could prove valuable for Statoil NES.

Educations, (Graduate Programme) Final Thesis
Publication date2017
Number of pages159