Even as M&A deals for power generation assets that were inked before the coronavirus became widespread in the U.S. sail toward closing, the sales processes lined up behind them are being put on hold.

It is still too soon to tell how asset valuations will be affected, Marathon Capital LLC CEO Ted Brandt said on a March 25 conference call hosted by Norton Rose Fulbright. "I'm not closing up shop and laying everybody off, but we're obviously nervous that transactions are going to slow."

"In the short term, we are likely to see risk aversion and a drying up of transaction volumes," said Roger Wood, managing director in Moelis & Co.'s power group. "We are only at the front end of the pandemic, with no visibility on how long it may last."

The long-term outlook is one that no one is yet able to predict, though it would be "unrealistic to think that power asset M&A would not be negatively impacted" in the event of a long-term market downturn or a global recession, according to Wood.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

"It's too early to assess whether COVID-19 will have a prolonged impact on M&A activity, but in the immediate term you will certainly see a slowdown in assets coming to market and will likely have a number of processes that are already underway put on hold," said Frank Nicklaus, principal at Greentech Capital Advisors.

That is exactly what is happening at Marathon, where several clients with plans to launch March sales are now eyeing prospective dates in May.

"Deals that are signed are moving to close," said Brandt, but sales processes in motion are likely to be delayed. "People still seem to be talking and trying to work through terms and trying to get there, but I think anything new is being slow-played by the market."

Operational assets will be the most attractive assets, as uncertainty swirls around projects still in the construction and development stages.

"Development assets will likely be the most adversely affected, since they have the greatest exposure to potential disruptions in the supply chain and financing markets, and may see delays in permitting and interconnection processes," Nicklaus said. "Given potential supply chain disruptions, uncertainty in financing markets, and stakeholders in the development process such as utilities focusing on their core operations and response to the outbreak, it's difficult to foresee a situation in which project timelines don't slip."

However, it remains too early to assess the severity of that potential slippage. While project delays are expected, they are unlikely to deprive their markets of critically needed power generation.

"Any lag in projects coming online is likely to be offset by a reduction in demand for electricity," Wood said. "For example, initial data coming out of Italy suggests that there could be a very significant drop in demand as economic activity falls."

Strategics rush in?

Some buyers seem likely to withstand, and even benefit from, a downturn. "You'll have a mix of investors pulling back as others seek to be opportunistic," Nicklaus said.

"The renewable energy business, if this lasts, is going to have more competition, because for the first time in a number of years, equity markets look very attractive," Brandt said. But while equity markets may lure financial buyers, strategics are likely to take advantage of the depleted field of bidders.

"We've never had more phone calls from large well-capitalized organizations saying now's our time and we're open for business," Brandt said. "Big, well-funded organizations live for these kinds of times."

Utilities and global corporates could remain committed buyers of power generation assets and may be "seeing this as just a short-term blip," Brandt said. "It's clear that that money seems to be drying up and doesn't seem to be available in the market, but we're representing several very committed ESG-related funds and several other strategics in very advanced processes, and they seem to be bidding aggressively and holding their pricing."

"Availability of debt is likely to be constrained, which will impact financial buyers in particular," Wood said. "This applies to all types of generation. Though, as always, contracted assets are likely to see less of an impact."

Merchant assets at risk

While lower demand and less available capital for projects is expected, some assets are more vulnerable than others.

"There's little doubt that a global recession would result in less liquidity for projects across the capital stack, but it would also reinforce the thesis for investing in renewable energy infrastructure," Nicklaus said. "Namely that you have long-lived, highly contracted assets which are largely uncorrelated with public equity markets and offer attractive risk-adjusted returns."

Uncontracted assets, however, could be in danger. "The impact to merchant assets will really depend on how long the economic slowdown lasts and what that does to power demand and natural gas prices," Nicklaus said.

"Merchant assets in particular are likely to struggle to find buyers at prices that existing owners will find attractive," Wood said. "A number of them may end up being owned by their lenders."