START-UP NEXTWIND "Start-up NeXtWind raises €707 million ($750 million)"

The start-up Nextwind has raised the most growth capital in Germany this year: 707 million euros (750 million US dollars) . The young company buys old wind turbines and replaces them with new ones on site. An interview with the three founders.

Three men founded a company in Berlin in 2020. Read it a thousand times? Yes. But the founders of Nextwind are not your typical Berlin founders. The team consists of: the lawyer and long-time Eon and Vattenfall manager Werner Süss (60), the wind energy investment specialist Lars Meyer (51) and Ewald Woste (63), former CEO of the Frankfurt municipal utility Mainova and the municipal utility association Thüga and current Chairman of the Supervisory Board of the Essen-based coal company Steag. Their business model: Nextwind buys old wind farms that are usually about to lose their EEG subsidy (maximum 20 years) and replaces the old wind turbines on site with new, more efficient turbines. In the industry, this business is known as "repowering". Nextwind currently employs 30 people. On average, someone new joins the team every week.

In August 2023, Nextwind raised the equivalent of 707 million euros (750 million US dollars) in its second financing round. The round was led by US investment firm Sandbrook Capital, which specializes in the energy transition, and the two Canadian pension funds Public Sector Pension Investment Board (PSP Investments) and Imco. The large sum was achieved in a start-up-hostile environment: according to an analysis by the consulting and auditing firm EY in mid-July 2023,German start-ups raised a dramatic 49% less money in the first half of the year than in the same period last year. The two solar system planners Enpal and 1Komma5Grad topped the list with 215 million euros each.

WirtschaftsWoche: Mr. Süss, Mr. Meyer, Mr. Woste, a few weeks ago you raised the equivalent of 707 million euros in venture capital - more than three times as much as Enpal, the previous top German company of the year. How do you explain that?

Meyer: Our business is very capital-intensive. You can spend between 10 and 20 million euros on a wind farm. If you buy five wind farms a year, which is not unrealistic, that's 100 million euros. And that's just the beginning. We want to add solar plants, batteries and possibly green hydrogen to the plants in the future. Even 750 million dollars won't be enough for long. We and our investors see this as a start.

But you will hardly have raised 750 million dollars just by referring to a capital-intensive business.

Meyer: The best way to convince investors is to prove that you can do it. And we have been able to provide this proof.

Süss: Between 2018 and 2020, we already bought ten wind farms in this constellation, but under a different name, with around 100 million euros in venture capital. These wind farms are currently all on a good repowering path. The aim at the time was to sell the wind farms again after repowering. Today, however, we are convinced that we are missing out on great strategic value. Because the story is far from over at this point. So we wanted to do the same thing again - and founded Nextwind. In2020, we raised another 100 million euros in capital in the first round, for another ten wind farms. So now we're doing it for the third time. It's a business model that fits the times: ecological and sustainable. This is a turning point in the German energy industry.

Woste: Investors have recognized that repowering is one of the most exciting industry topics in Germany, with the phase-out of nuclear energy and coal-fired power. Foreign investors see this: This transformation must succeed if Germany wants to remain an industrial location. If we manage this, Germany will be the first country to be CO2-neutral.

In theory, the German government has stipulated that four to five new wind turbines should be built every day in order to achieve the expansion targets. However, only one to two turbines are currently being built on average per day. What can repowering contribute here?

Süss: Repowering is an essential building block. If you replace an old wind turbine with a new one today, you get around three times the energy yield. This is simply due to technical progress. Secondly, the local community is already used to the wind turbines, so local acceptance is much higher. That is sustainable in both senses of the word.

Meyer: Germany is a densely populated country. Many of the best wind locations, especially in northern Germany, were of course already built on in the early 2000s when the Renewable EnergySources Act (EEG) was introduced. Suitable land is a scarce commodity! If these sites are no longer operated after 20 years, this is downright criminal. Repowerig is an absolutely necessary initiative to drive forward the energy transition.

You have currently purchased eleven wind farms. A manageable number given the total of 28,517wind turbines in the country. How many should there be next year?

Meyer: We have over 80 wind turbines in the eleven parks. When repowered, they will generate around 400 megawatts. It would probably be possible to double the current number of our parks within a year. We want to reach the 1-gigawatt mark in the medium term, i.e. 1,000 megawatts. But that's just wind, for us an energy location is also photovoltaic.

Your business should accelerate, time is on your side. According to an analysis by the specialist agency Wind an Land, the repowering rate in relation to new turbine capacity was 34 percent in the first three quarters of 2023. This is the highest proportion in nine years.

Süss: The increase in German wind turbines began in the early 2000s. They are now all coming into this period, when repowering is theoretically imminent. The second factor in the growth of our business is the political tailwind. This should not be underestimated. The Federal Minister of Economics is doing a good job here. It's fair to say that.

Meyer: The EEG was also copied by other countries after its launch in Germany because it was an effective means of rolling out this industry. For us, this means that once we have understood this business in Germany, we can also apply our experience in other European countries. We are still only active in Germany, but we are already looking abroad. The momentum is on our side.

Süss: Germany is the laboratory market. If you can do it here, you can also do it in the rest of Europe.

Isn't the growing market also attracting more competitors? There are larger project planners such as PNE from Cuxhaven, WPD from Bremen, Encavis from Hamburg and Juwi from Wörrstadt. Largeenergy companies such as Innogy are also involved.

Woste: We already have considerable competition. We have to hold our own. It is important that we can prove that we can repower as quickly as possible. Applications to the authorities can take time. But we want to pick up speed and become the leading player in the market.

The landscape of wind farm operators is quite heterogeneous: there are farmers and local authorities, but also banks, hedge funds and large energy companies. Who are you increasingly targeting?

Süss: Everyone. At the beginning of the 2000s, it was mainly private individuals or smaller funds that had small wind farms built; the energy companies only got involved later. There are now many people who are getting to an age where they are willing to sell. Or who are asking themselves: Do I want to do this to myself, to go into the next round? It's true, it's a heterogeneous market. But we are very well networked in this market.

Woste: And the market is changing. The early investors set up three to five plants and earned good money via the EEG - but had zero risk. They didn't have to worry about marketing or technical issues.That was exactly the right approach for the first phase to bring this technology to the market. Now we are entering the second phase: how can we make the production of wind, photovoltaics and biomass capable of meeting base load requirements? How can we supply Germany with this energy that is not permanently available? In the long term, wind farms need to be upgraded with battery storage systems, for example. If we want to supply this country with CO2-free energy, we have to address these questions. This overwhelms many investors from the first phase who had nothing to do with these issues.

Meyer: In this heterogeneous ownership structure, the complexity of the future of wind energy is no longer manageable for many investors, nor is it what they want. But at the same time, the complexity of existing turbines is also increasing. The technical risk is increasing, manufacturers' guarantees are expiring and the EEG is also coming to an end. After that, there is a price risk that has to be managed. This opens up the opportunity for us to enter the discussion.

Don't the operators of older turbines also want to "repower" their own wind farms? It should be a lucrative business given the electricity prices. Why do you even need providers like Nextwind?

Meyer: Absolutely, there is! We can't do everything either. But there are also many farmers who joined forces 20 years ago. They were perhaps 50 years old back then. Today they are 70 and have to ask themselves: Do I want to make the new investment now? It's like in SME management: sometimes you have a successor, sometimes not.

Süss: For the first 20 years, a plant is subject to the EEG feed-in tariff. After that, trading takes place on the spot market, which is a challenge in its own right. You need electricity trading expertise, just like in the oil and gas market. A renewed, "repowered" plant, on the other hand, falls back into the EEG tariff for 20 years. However, the costs of the plants have risen significantly.

In concrete terms?

Süss: 20 years ago, a wind turbine might have cost one million euros, today it costs between seven and nine million euros. These are different economic dimensions. So there is definitely an entrepreneurial risk. On balance, however, I would say that the increased costs and increased efficiency balance each other out when it comes to the amortization of a wind turbine: They used to be smaller and cheaper, today they are more expensive but also more efficient. Little has changed.

Meyer: The purchase of an old wind turbine should pay for itself within its lifetime. But it won't make you rich.

Woste: The EEG subsidy runs for 20 years, but a modern wind turbine runs for longer than 20 years. This means that plants are automatically excluded from the subsidy, but they continue to produce electricity. We then try to sell this electricity on the exchange or conclude long-term contracts with large customers. The demand for green electricity is there, every medium-sized company wants it. They want direct purchase contracts for green electricity. This market is currently developing.

Despite the booming market, not all of your inquiries are successful. Why do the projects fail?

Meyer: We either fail because of the competition or because of the price. We have not yet failed in the actual repowering process, i.e. obtaining new approval for an old site. Before we buy, we carry out a very careful analysis to see whether we can get a new permit for the existing site.

Such a replacement means that you have to have the entire wind turbine dismantled. What happens to the old turbines?

Süss: The concrete foundation is shredded and, if things go well, ends up in road construction directly on site. A large part of the tower, especially the steel and copper, can be recycled. The glass and carbon fiber components in the rotor blades can now also be reused with new technology. Ideally, old turbines can also be resold and rebuilt elsewhere.

Which manufacturers do you source the new turbines from? From the faltering Siemens Gamesa, for example?

Meyer: We are open and are not tied to one manufacturer.

Süss: Siemens Gamesa is surprisingly rarely represented in the on shore sector in Germany. Germany is dominated by Enercon, Vestas and Nordex. Basically, anyone who is active in the market must have good contacts with all manufacturers.

Woste: We have lost the photovoltaic industry in Germany to China. We shouldn't lose the windpower industry as well.

About the person: Nextwind founder

Werner Süss studied law in Munich and worked for the Swedish electricity company Vattenfall  Europe Sales for around ten years (most recently as CEO); in 2012 he founded Wind Capital Partners (with partners) in Berlin, an M&A consulting firm for onshore wind turbines.

Ewald Woste studied Business Administration at the University of Paderborn and managed the municipal energy group Thüga (in Munich) for eight years; he was also President of the German Association of Energy and Water Industries (BDEW) and subsequently a member of the supervisory boards of various energy companies (such as Thüringer Energie AG, Dena, Energie Steiermark, Berliner Gaswerke and Eon). Woste has been Chairman of the Supervisory Board of Steag AG in Essen since December 2022.

Lars Meyer studied industrial engineering (TU Braunschweig) and gained M&A experience at Siemens, later in London at the US investment banks Lazard and SVP Global and most recently at Centerbridge Partners, a private investment company from New York. In 2018, he founded Q-Energy, an investment company for renewable energies in Berlin.

Werner Süss, Ewald Woste and Lars Meyer. Picture: Press

This article first appeared in WirtschaftsWoche on November 6, 2023. To the article.

This text has been machine-translated.