ClimateRock (NASDAQ:CLRC) has entered into a definitive agreement to combine with solar plant developer EEW at a proposed equity value of $650 million.

London-based EEW designs and sells solar utility-scale solar power plants in Europe, Africa, Australia, and the US.

Transaction Overview

ClimateRock brings an estimated $80 million into the deal from its current trust and has not yet supplemented this with a PIPE. The parties have not yet filed their merger documents or an investor presentation, but ClimateRock’s profile page will be updated once additional information is made available.

The announcement press released noted that EEW expects to retain 80% to 85% of the equity in the combined company and ClimateRock must maintain at least $40 million in cash available in order for the deal to close.

Quick Takes: EEW is the second solar developer to announce a SPAC deal this week, following Freedom 1’s announced combination with Complete Solar and Solaria. But, it brings its own angle on the renewable energy market.

While Freedom 1’s deal takes aim at residential solar in the US, EEW has primarily been a utility-scale solar project developer in Europe and Australia. It has in fact become Sweden’s largest solar developer. This comes at a time when global markets are under enhanced strain in making up for energy generation shortfalls due to Russia’s invasion of Ukraine.

As a project designer, EEW has primarily taken a light approach to its piece of the process. While it offers to take projects all the way from feasibility studies through construction and on to offtake agreements and operations, it doesn’t typically do all of the heavy lifting itself. Local contractors handle construction and it arranges senior debt, construction finance and equity financing with outside partners as well.

It has developed and sold 21 projects over 14 years through this model that now generate about 1.5 GW, with another 11.3 GW in its pipeline. It has focused on the non-subsidized power markets so it is not necessarily sensitive to near-term regulatory changes and it estimates this space has a total market opportunity of 2,000 GW by 2040, worth $10 trillion.

But, it is unclear what slice of that market EEW would be in line for, even if it hypothetically took the whole pie. By dodging the large parts of capex it also reduces the total amount of margin it has the opportunity to capture from project development. So, investors will surely be eager to see the full deck.

This move to list in the US coincides with a recent push by the company to enter the US renewables market. It opened a New York City office and plans to initially target the major California, Texas and Florida markets with an emphasis as well on New York, Virginia and Arizona.

One complication it may face in the US is in sourcing as its European and global efforts have seen it import a great deal of modules from China, but the Biden administration has taken steps to push stateside renewable energy developers to buy American.

For ClimateRock, the deal fits well within the frame of what it sought out when it IPO’d as a 12-month SPAC in April. But, it does note on its website that it was hoping to combine with a company holding clean energy assets, which EEW’s model appears to create but not hold at the end of the day.

The company is likely to see considerable upside if it takes on some sort of a recurring fee from the projects it has designed and sold in the past, but it otherwise will need to keep pace with its sales in order to generate the predictable returns that the market will want to see.

Until then, it joins a cohort of four solar power de-SPACs that have closed deals since 2016, only one of which has been a clear hit – Altus Power (NYSE:AMPS), which closed Thursday at $10.97

ADVISORS

• White & Case LLP is acting as legal counsel to EEW.
• Alantra is acting as lead financial advisor to ClimateRock.
• Ellenoff Grossman & Schole LLP is acting as lead legal counsel to ClimateRock.
• Simmons & Simmons LLP is acting as UK legal counsel for ClimateRock.