Transactions in power & utilities moving to renewables

15 September 2017 Consultancy.uk

Transactions in the power and utilities sector have increasingly moved toward renewable deals according to a new report. Overall, the second quarter was down 32% on the previous quarter, and considerably so on the same period in 2016.

The latest edition of EY’s ‘Power transactions and trends’ has seen researchers with the Big Four firm explore wider transaction activity trends in the power and utilities sector, for Q2 2017. In that period, the sector saw total deal value hit $30.8 billion, with renewables being the second biggest drivers of transaction value after the more diverse ‘other sector.’ Transmission, distribution and generation followed, with the latter generating only a small amount of value. Deal volume also ticked up, hitting more than 140 in the most recent quarter, with 66 of them in the renewables segment.

Globally, the latest quarters’ figures show a 32% decline in deal activity, compared to Q1 2017. While deal activity is still higher than 2015 levels, there was also a decline relative to Q2 in 2016. The seeming decline in activity is unlikely to continue deeper into 2017 however; as the consequences of a low interest rate environment, a surplus of global capital, a relatively favourable outlook for P&U in light of new business models, and a shift towards increasingly cheap renewable technologies drive new investment.

Global P&U value and volume

The research also indicates increased interest from corporate investors in the wider renewables space, which include battery technologies and related firms and gas-fired power plants – although the latter appear to be risky investments in light of global Paris Agreement targets.

The research also looked at investment flows in terms of both inbound and outbound investment activities. Australia leads in terms of the most inbound investment value for a single country, with 19% of total at $6 billion. China follows, with 14% of total value, or $5.5 billion. The UK saw a relatively robust 9% of total investment activity, or around $2.8 billion in inbound investment. The rest of the world contributed 20% of the total pie, or $6.2 billion.

In terms of outbound investment, the rest of the world was on top in terms of total at $4.7 billion or 41% of the total. The US clocked 9% or $1.1 billion, while the UAE saw around $0.9 billion outbound.

European deal value and volume

Europe was a relatively active market, with total deal volume representing around a third of the total at 55 deals. Total deal value was a similar proportion, with $10.9 billion. This was an increase of 12% on the previous quarter and 31% year-on-year.

The T&D segment was the most active, with network investment adding $4.3 billion to total deal value; followed by ‘other’ types. Interestingly, after a boom in Q1 2017, renewables deal value was considerably lower than before, with average deal value falling from $278.5 million in Q1 to $62.15 million; however, the report notes that volume was driven largely by renewables (55% of total), even with relatively low value.

European investment landscape

Of the total $10.6 billion in investment value, Spanish projects saw the biggest inbound investment at $2.8 billion (27%), followed by the UK also at around $2.8 billion (26%). Norway attracted $1.9 billion in investments (18% of total), while the rest of Europe saw 11% of the inbound pie. In terms of outbound, the UK investors flowed 21% of the $8.2 billion into projects globally, although this was dwarfed by the rest of Europe’s 37% share.

Matt Rennie, EY Global Power & Utilities Transactions Leader, said, “The decline in Americas deal value suggests that concerns over rising interest rates in the US and US federal policy changes may be taking their toll on investor confidence — but time will tell. Regardless, we expect the relentless march of renewables and energy reform initiatives to continue to spur an increase in deal volume globally.”

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