Interview: Lars Meyer on investing in German repowering projects

“The early adopters were pioneers, and the value they created for themselves, for society and for changing our energy mix is remarkable.”

Nextwind chief investment officer Lars Meyer is discussing the “phenomenal impact” of Germany’s pioneering onshore wind investors, who were backing onshore wind farms in the early 2000s when most utilities wouldn’t touch renewables. Those investors were often driven by a personal desire to support renewables. The generous feed-in tariffs (FITs) didn’t hurt either.

But those FITs are now coming to the end of their 20-year lifespan, so the pioneers face a dilemma. Do they take the risk and hassle of repowering first-generation wind farms to carry on receiving returns? Or do they sell up? With the latter option, they make a profitable exit while ensuring the site remains in use for green power.

That’s the option Meyer says makes most sense. Meyer is a seasoned clean energy investor with experience at firms including Centerbridge Partners, Q-Energy and Re-Wind; and is now CIO at independent power producer (IPP) Nextwind, which launched this week.

He says this new IPP can carry on the pioneers’ work.

“It’s like a relay race. We’re taking the baton with a different skillset that is right for the new opportunity in a new kind of reality where things are more complex,” he explains.

This complexity doesn’t just mean repowering and end-of life extension strategies. He says that developing a profitable project is also significantly more difficult now compared to 2001, because of the competitive auctions for feed-in tariffs and high levels of merchant power price risk that operators now take.

A Word About Wind spoke to Meyer to find out more about Nextwind, and why he sees German repowering as a major opportunity for IPPs in the next 10-15 years. He says it plans to build a 1GW portfolio of end-of-regulatory-life assets in Europe, and especially wind farms of up to 20MW where it can double headline capacity.

The firm’s management team is led by CEO Ewald Woste, who is a stalwart of the German energy industry and a member of supervisory boards including E.On SE. The team also includes ex-Vattenfall executive Werner Süss as COO, Meyer as CIO, and the investment banker Sven Hansen as chairman. The firm’s backers include Crestline Investors, Ferd and ARB Investment Partners.

The next episode

Nextwind sees itself as a relay partner to the first-generation investors.

“In the early 2000s, most utilities – at least in Germany – were somewhere between smiling and laughing about the efforts of people to put up wind turbines. They said it wasn’t worth their time. That was when the first generation of investors came in.”

Meyer says those pioneering investors were normal people that wanted to invest in renewables assets that provided stable FIT returns with low risk.

Their contributions enabled German wind to become Europe’s first sizeable renewable energy investment market. But Meyer argues that those investors would not typically develop a connection to a particular asset, and didn’t want development risk. This means they would be ill-suited to today's market.

“They’re not industrial players. Their investment thesis was all about the initial regulatory scheme, which promised stable cashflows for 20 years.”

Their risk appetite will have fallen further as they are now two decades older.

This is an opportunity for IPPs such as Nextwind, which is looking to become a major player in the fragmented German market. By 2036, Meyer says that all German onshore wind farms that completed between 2000 and 2015 will need to be repowered.

But Meyer reckons the opportunity is even bigger than that. He says the pioneers are also sitting on some of Germany’s most attractive wind sites, and this “precious real estate” is crucial for the next phase of the energy transition in Germany. It must stay in wind’s hands.

That’s why Nextwind’s strategy is to “try to buy up as much of that real estate” as it can. Its founders have experience of building two similar platforms before for other investors, and are looking to announce their first two Nextwind deals in the second quarter.

Then it will be out of the blocks in Germany’s repowering race.