109 ANNUAL REPORT 2022 STRATEGY & OUTLOOK BUSINESS REVIEW - RENEWABLES The attractiveness of renewable energy projects has already created an extensive secondary market for renewable assets and platforms, enabling efficient use and recycling of capital. I will provide more details on this in when I elaborate on ‘Building the platform to create value’ further on in this commentary. Market positioning As noted in the summary of our external environment, the renewables segment is growing fast, driven by government policy, international commitments and the recovery from the pandemic. This leads to increased competition, not least from large players such as oil companies and major utilities. Our market positioning has been to seek smaller projects – a market which we believe offers a more suitable competitive landscape to our growth plans. This generally leads us away from the intensively competitive offshore renewables space, which tends to have a higher entry cost and risk profile, compared to onshore renewables projects. We anticipate that onshore renewables will experience one of the highest growths in the renewables segment in the coming decades, measured in absolute terms. This growth gives us ample opportunity to capture good projects while balancing risk across a wider portfolio of projects. That said, we may still consider offshore renewables projects if they meet the considerations of our investment policy and are in alignment with our strategic plans for growth. Market selection Finding the right markets in which to participate is as important as the right market positioning. The largest markets may offer good potential, but often the best opportunities for Yinson can be found in smaller markets. We mainly focus on geographies where we believe we can establish a large enough operating portfolio (i.e. above 300 MW) to provide economies of scale and efficiency in operation. Currently, our prime geographies are Europe, Latin America and Asia Pacific. The combination of these regions gives a good balance of mature versus emerging markets, which enables us to have a balanced risk reward profile. In addition to the above, we undertake a rigorous review focusing on the regulatory and political context whilst also ensuring the strong fundamentals of the market. Project selection & local partners When we find markets with potential, we opt to work with the right local partners or service providers who have good onthe-ground experience and knowledge of local conditions. Our local partners help to source new projects and provide local development services in order to bring the projects to ready-to-build status. We perform due diligence on all projects before taking them into our portfolio. The strategy has been very successful, and we now have alliances with 9 local developers in 7 countries. This has delivered significant growth in our pipeline during the last 12 months which we will describe more in the next subsection. In line with our Core Value of being Reliable, we place great priority on building credibility with our local partners by establishing great working relationships and delivering on our commitments. This is crucial, as it catalyses an already symbiotic relationship and positions us as a preferred partner when new prospects arise. As the saying goes, ‘success breeds confidence, trust and more success’. Building the platform to create value Over the past 24 months, we have successfully laid the foundations for a strong growth business based around a pipeline of good development projects. Over the next 24 months, multiple projects from our development pipeline will be ready to start construction, adding on to our existing portfolio of assets in operation and under construction. This will grow our portfolio of operating assets and open the door to bringing greater value to the Group, including optimising our capital recycling plans. During the early days of renewable energy, it was tangible operating assets that were attractive to secondary market investors – and that was where the value was made and extracted. As the market matured, investors began putting significant value on assets under construction and secured development assets – i.e. those with up to a 4 to 5 year time horizon until they deliver income. Now as the market expands more rapidly, in line with the energy transition, investors are also attributing considerable value to early-stage pipeline assets. The value at early-stage developments can be increased if they are managed by teams with a strong track record of converting prospects to generating assets and a strong organisation behind the team providing financial and corporate support.
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