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Renewables deal flow to grow
By Margaret Lee
Despite industry uncertainty and economic insecurity, the flow of
deals in the renewables sector in 2011 reflected strong growth and
increasing maturity as the sector moved further into the mainstream.
According to PwC’s annual global analysis of mergers and acquisition
(M&A) transactions in the sector, deal value was up 40% and the
consultancy expects deal flow to grow.
Overall, the 40% rise in M&A activity in 2011 resulted in deal
value at a record high of US$53.5 billion, up from US$38.2 billion in
2010. For the first time, new generation technologies such as wind and
solar overtook hydropower in deal volume.
Hydropower has traditionally constituted a significant section of
deal flow and investment in renewables, with large-scale dam
construction and a strong historical track record. With new generation
technologies taking over, this reflects the shift in market perception
of other renewables.
Billion-dollar deals dominated as solar, wind and energy efficiency
deals surged ahead. One in every three deals last year was solar and
overall deal value for the sector was up 56% from US$10.2 billion to
US$15.8 billion. Solar and wind saw around US$16 billion worth of deals
globally, with transactions worth US$10 billion completed in the energy
efficiency sector. Overall deal value in solar and energy efficiency
nearly doubled year-on-year and together, they accounted for the vast
majority (79%) of the US$15.3 billion increase in the total value of
all renewables deals. Paul Nillesen, a partner at PwC, said:
“Deal-making in the renewables and energy-efficiency sectors is
intensifying as the sector evolves. Sustained high deal numbers and
record total value reflect a maturing of the sector. The trend is all
the more noteworthy, given the uncertainty in the market and in
government policies on renewables. We believe that deal flow will
continue to be significant in the medium term.”
Growth in deal value was especially positive, given that it took
place against a backdrop of financial and regulatory uncertainty around
The European market was particularly challenging, with problems
caused by sovereign debt and the Eurozone crisis likely to continue. Of
course, that does make it fertile ground for takeovers – in 2011
European deal volumes dipped 6%, but overall value rose 80% from
US$16.7 billion to US$30 billion.
While major deal activity in 2012 is expected to occur within the
key manufacturing zones of China, the US and Europe, deal volume last
year was also up in the rest of the world, which points to growing
areas of interest. Whilst activity in North America fell in 2011, both
in terms of deal volume and value, South American deal volumes were up
90%, with total value up from US$3.2 billion to US$6.8 billion.
Despite the difficult conditions in the market, PwC’s Nillesen
expects to see deal flow increase this year. “Staying out of the
markets in the hope things will improve cannot be assumed to be the
right strategy. The potential for further destabilisation domestically,
or at an inter-governmental level, cannot be ruled out, but if a deal
is highly strategic, and mission-critical, then parties will still feel
it is worth doing on the right terms,” he said.
There are a number of drivers behind current activity in renewables.
Falling solar prices are bringing solar power closer to grid parity in
some markets, and improving its economic profile in most. The entrance
of pension and insurance funds, for example the US$1.3 billion
investment by Danish pension insurance groups in offshore wind in
Denmark, underlines a trend towards a maturing market and the creation
of secondary markets, with assets sold for a second or third time. This
is also supported by the trend towards larger deals, as well as growth
in deal value.
While tragic, the disaster in Fukushima had a dramatic impact on the
renewables sector. Many countries reappraised their energy strategy,
with some, like Germany, disavowing their nuclear industry altogether.
This refocus provided a boost to the renewables industry, in terms
of corporate interest and in terms of generation rollout. What is more
difficult to predict is exactly which sub-sectors are likely to grow
and how. Efficiency is clearly likely to continue on an upward
trajectory. Corporate interest in the management of the price and
emissions of power consumed, as well as concern over supply chain
impact, are driving many corporations to look to increasing efficiency.
The latest report from the Carbon Disclosure Project (CDP) suggests
that 43% of CDP respondents have achieved year-on-year emissions
reduction, while only 28% of their suppliers have done so. With 39% of
CDP respondents saying they would deselect suppliers that failed to
meet formal environmental criteria within five years, there is a clear
trend for emissions reduction on both an environmental and cost basis.
In areas of generation such as solar and wind, PwC expects to see
greater consolidation and joint ventures, with a smaller number of
large global players likely to emerge. Heavy competition and growing
cost pressures are likely to drive consolidation in both the solar and
wind sectors. Two recent profit warnings from Danish company Vestas are
the most high-profile example of the challenges facing some wind power
Future developments in the solar sector appear the most uncertain.
Prices crashed in 2011 in large part owing to cheap Chinese
manufacturing, causing problems for producers in the US and Europe.
While this led to growth in installations, a number of leading solar
manufacturers were forced out of the market. Many leading Chinese
manufacturers are facing heavy debt burdens, however, and there is a
likelihood of overcapacity in the market.
At the same time the price of silicon appears to be on the rise –
with Bloomberg New Energy Finance recently reporting the third weekly
increase in the price – so developments in solar may prove difficult to
Significant deal flow is expected throughout 2012 despite industry
and economic uncertainty, but the report did warn that the sector was
facing considerable growing pains. Continuing uncertainty in the
Eurozone will still make the deal environment challenging and a deeper
crisis would undoubtedly dampen deal flow further.
Yet steady interest from Asia is likely to continue to drive the
market. While European bidders accounted for 48% of the total, and
North America for 24%, the value of deals with Asian bidders almost
doubled to US$9.4 billion or 18%, up 12% from 2011.
Despite the ramp-up in deal value in 2011, stocks in renewable
energy companies suffered on the global indices as the economic
situation in Europe deteriorated. Standard & Poors’ S&P Global
Clean Energy Index, which tracks the performance of 30 of the most
liquid and tradable global clean energy companies, fell by nearly 44.5%
Such fluctuation in share prices not only demonstrates the current
instability in the market but also reinforces the opportunities that
are available to dealmakers in the cleantech field.