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Renewables M&A hits new record highs

• Total renewables deal value leaps 40% worldwide, driven by industry shake-out

• Significant deal flow expected throughout 2012 despite industry and economic uncertainty

Deals for ‘new generation’ renewable technologies – wind, solar, biomass - are entering the big time driving the market to new record highs, reports PwC in its annual global analysis of merger and acquisition (M&A) transactions in the renewable sector.

Deal values rose 40% year on year, from US$38.2bn in 2010 to a record level of US$53.5bn in 2011. Billion dollar deals dominated, as solar, wind and energy efficiency deals overtook hydropower as the driver for big deal values for the first time. One in every three deals last year was solar and overall deal value for the sector is up 56% from US$10.2bn to US$15.8bn.

A reappraisal of the role of nuclear in many countries’ national energy strategies after the Fukushima emergency has provided an extra impulse for renewable generation in certain markets. There was also continued strong momentum behind deal activity in the solar and energy efficiency sectors. Buoyed by the increase in big transactions, deal value in these two sectors nearly doubled year on year. Together, they account for the vast majority (79%) of the US$15.3bn increase in the total value of all renewables deals.

Richard Spilsbury, partner and energy specialist at PwC in Aberdeen, said:

“Dealmaking activity continues to mature in the renewable and clean energy sector - both direct investments and in the supporting service sector - and as a result we are seeing evidence of more dealmaking activity both globally and in the UK.

“In Aberdeen, the industry is continuing to invest in renewable energy as this complements their existing operations. The rise in investment clearly demonstrates the need to not only continue this investment but increase it to gain a greater share of the this emerging market."

“As we reported in our Northern Lights paper a few months ago, research has already shown that Scotland has sufficient renewable energy resources to provide 75% of the UK’s electricity needs, while estimates suggest it could also provide 25% of Europe’s onshore wind resource, 10% of wave resource as well as significant potential for tidal stream and offshore wind capacity. There is no reason why Aberdeen couldn't be the hub for this sector and help drive the UKs future dealmaking activity - after all it has the industry, the natural resources, the technologies and transferable skills.

“Scotland is certainly proving to be a keen ambassador for renewable sector and energy efficiency, both in terms of Scottish Government policy and ongoing lobbying to bring the Green Investment Bank to Edinburgh, and the benefits are trickling through.

“The announcement last week of the approval of the £7 billion of investment by SSE and Scottish Power to upgrade its network infrastructure to support the burgeoning offshore wind market is further evidence of the confidence in the sector.”

Falling solar prices are making solar power more economic and closer to grid parity in some markets. The entrance of pension and insurance funds, most notably via the $1.3bn investment by Danish pension insurance groups in offshore wind in Denmark, confirms the trend towards a maturing market and the creation of secondary markets, with assets sold for a second or third time. But the report warns that the sector is facing considerable growing pains.

As well as expecting to see a smaller number of global players in the solar market, PwC also says that consolidation among larger players is likely to occur in the windpower sector. Two recent profit warnings from Danish company Vestas are the most high profile example of the challenges facing some windpower companies.

Richard Spilsbury, partner and energy specialist at PwC in Aberdeen, added:

“As offshore wind projects increase in size, the need for a strong balance sheet to support the technology and investment required becomes more important. The entry of Repsol to the Scottish offshore wind market after acquiring the stakes in Round Three Wind Farms held by Sea Energy demonstrates the type of transaction this will drive.”

Continued rolling uncertainty on the eurozone crisis will make the deal environment much more difficult for 2012 according to the report. While a deeper crisis would undoubtedly dampen deal flow further, it is expected that market uncertainty won’t on its own block the bigger deals.

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