Stability of renewable sector sees M&A activity race past €20 billion mark

Investor activity in the renewable space is picking up, as technologies becomes less costly, and more efficient. M&A activity in the space saw deal activity increase in 2017, while deal value rose 31% to €22 billion – driven, among others, by consolidation, yield and access to technologies.

In order to meet the upper targets of The Paris Agreement, considerable effort across the globe will be required, involving wide spread collaboration to achieve. As a result, the global shift towards renewable energy continues apace. While the prices of various forms of renewable energy continue to fall, governments continue to bridge the gap towards fully sustainable sustainable energy generation.

Amid this increasingly supportive and stable framework, corporate and institutional investors are on the lookout for returns in the segment. A new report from KPMG, titled ‘Great Expectations’, exploring the current trends in the global renewable energy M&A space. The study involved 200 senior executives from corporates and financial funds, across the globe.

Overall the research points to a relatively stable marketplace for deal activity, with volume for the first half of 2017 at around 200 deals. Deal value too came in at around €22 billion by the end of H1 2017 alone. This represents an 8% increase in deal volume on the same period the previous year, and a 31% increase in value.

The actual energy market saw the addition of around 165GW of new generating capacity in 2016, a 9% increase on 2015. The market as a whole has been boosted by relatively low-interest liquidity and opportunities for returns, interest from institutional investors looking for stable returns, divestment out of oil and gas, as well as interest from oil and gas, too, has supported market growth.

In terms of investor type as buyer of target renewable companies for the next 12 months, the research points to a relatively even split between expectations for corporates and financial buyers. Surveyed banks expect the split to slightly favour financial buyers, while the financial buyers themselves, such as various fund types, largely (78%) expect funds to be the most active in the space. Oil and gas companies and utilities are the most likely to see corporates as the key investors in the coming 12 months, at 63% and 64% of respondents respectively.

In terms of the changes in the market when it comes to project valuations, various project types are said by respondents to see valuation increases, such as photovoltaic solar (up 81%), thermal solar (up 51%), and offshore wind (up 82%). Geothermal is likely to see the highest number of valuation decreases, at 25%, while onshore wind and biomass/biogas are the most likely to remain unchanged, at 53% and 55% respectively.

Obstacles

The research notes various difficulties when it comes to investment in the renewable energy sector. Across the globe, planning permission is the most cited difficulty, followed by incentive instability and technology changes. Access to financing and changes in the regulatory environment are of particularly concern in the ASPAC and EMA regions respectively.

In terms of obstacles for the different investor types, corporate and financial investors, planning permission was cited relatively equally between them, while funds are the most likely to cite technology in second place, while corporates cite access to financing in second place.

Summarising the challenges faced by the automotive space, the authors commented, “There are plenty of opportunities to be found. The renewables revolution offers technology-driven energy generation and distribution, consistently and at an increasingly reasonable price. Innovative technology, designed to increase and maintain security of supply and meet growing consumer demand, is being introduced with impressive speed.”