M&A within the global Power & Utilities sector is moving further towards renewable generation and related disruptive technologies, as new policies and market changes open up a mid- and long-term transformation towards sustainable energy assets. Europe in particular has seen a large number of deals in the renewables sector, while in the Americas, players are seeking to leverage disruptive technology in distributed energy and storage.
In a new report from EY, titled ‘Power transactions and trends’, the professional services firm displays the M&A trends within the global Power & Utilities (P&U) sector throughout Q2 2016. The analysis is based on information from global financial releases and Merger-market data, as well as the opinions of their analysis regarding current market trends.
Across the globe, deal activity has picked up slightly on Q1, with 128 deals in Q2 compared to 116 in Q1. Deal value, is down slightly, from $44.4 billion in Q1 to 43.5 billion in Q2; the Americas sees the largest drop in deal value, while both Europe and Asia-Pacific see larger deal value to the previous quarter. Deal value and volume exceeded that of the same quarters in 2015, although they are relatively far behind Q3 and Q4 2015, when value reached almost $80 billion.
he report highlights that in both emerging and developed markets there is a growing investment shift towards cleaner forms of energy generation, with new technologies, changing consumer behaviour as well as government incentives and related programmes they key drivers. Disruptive technologies are also being invested in, including distributed energy and battery storage capabilities.
COP21 put the wind up the global market that complacency and kicking the can down the road is no longer an option, energy generation needs will need to quickly shift towards sustainable forms, to avoid dangerous climate change in the near future. The research finds that a drive for renewable across Europe is reflected in the M&A numbers, with around half of the value of the 58 M&A deals within the P&U sector in Europe, related to renewable deals. The research suggests that bolt-on deals continue to be the main driver in the renewables segment, although a number of large deals – two billion-dollar acquisitions – generated 35% of the value in the segment in Q2.
Highlights for the sector include an increase in Asian corporate activity within Europe (for example China Three Gorges Corporation acquiring an 80% stake in WindMW for $1.8 billion) and the growing demand by integrated oil companies seeking to diversify their bets by investing in technologies and downstream P&U assets (for instance Total's acquisition of Belgium-based electricity and gas distributor Lampiris and the launch of a subsidiary, BatWind, by Statoil to develop energy storage for offshore wind). The consultancy notes that, while renewable activity has been hot, the current regulatory environment across Europe remains tough, with the UK and Germany removing clear regulatory and incentive support for renewables.
In the Americas, a range of regulatory, investor and technological developments are rocking the P&U market. The region is continuing to see consolidation, as part of a move to mitigate the effects of regulatory pressure and low energy prices. Great Plains Energy, for instance, announced the acquisition of Westar Energy for $12.1 billion. The region is also seeing increased attention paid to distributed energy technology, with Edison International for instance starting its own consultancy in the technology segment to diversify its offerings. Technological development in energy storage are further driving market changes, with as yet uncertain consequences for distribution and generation as grid parity approaches.
In total, the Americas saw 35 deals in Q2 2016, valued at $24.7 billion. Deal activity favoured generation and T&D, with few renewable energy deals within the market. Notable renewable related deals include Tesla’s bid to acquire SolarCity for $2.8 billion.
Matt Rennie, EY Global Power & Utilities Transactions Leader, says, “Ongoing sector and global volatility continues to be at the forefront of investors’ minds. In the second quarter we saw this play out in the form of buyers seeking safe bets in renewables, where demand continues to rise in developed and emerging markets, and regulated transmission and distribution assets that offer stable, long-term returns. The trend toward investment in disruptive technologies is also gathering pace. Both utilities and non-traditional investors are shifting their focus to areas like distributed energy and battery storage. And, as consumer demand increases, more M&A will follow.”