Renewables accounted for the lion’s share of all power and utility transactions during 2015, according to a new report from EY.
EY’s new report, Power Transactions and Trends: 2015 review and 2016 outlook, highlights the increasing evidence that utilities and investors are using mergers and acquisitions (M&A) “as a strategic tool to adapt to changing dynamics within power and utilities” (P&U). Specifically, EY claimed that 2015 recorded P&U deals valuing a total of $200 billion — a 6-year high and a 13% jump on 2014 — with renewables investments accounting for 50% of the total global deal volume.
According to the report, renewables accounted for 50% of transactions over 245 deals, generating a total of $68 billion, “showing that investors around the world remain focused on adding wind and solar assets to their portfolios to comply with regulations and reduce exposure to increasingly volatile commodities.”
Alongside renewables were cross-sector convergence and midstream/upstream investment, with transactions totalling $33 billion.
“Utilities are increasingly joining forces with firms outside the sector to capitalize on synergies and shared experience,” said Matt Rennie, EY’s Global Power & Utilities Transactions Leader. “Electricity and gas megamergers in the US, telecommunications deals in Japan, and tech-driven partnerships in Europe highlight the pursuit of innovative growth across the sector throughout 2015.”
The last two quarters of 2015 were particularly strong for the sector, as seen below.
Global P&U deal value and volume (Q4 2013 – Q4 2015)
And as can be seen, the Asia-Pacific region is itself accounting for more than half of all deals (by value).
Global P&U deal value by region (US$b, Q4 2013 – Q4 2015)
Specifically, domestic and outbound deals in China and energy reforms in the Asia-Pacific region accounted for a 100% increase in regional deal value over 2014’s numbers. EY is predicting that deal activity is set to remain strong in China, despite the economy showing some signs of a slowdown.
“The need for new generation capacity across the region alongside energy reforms in China, India, Japan, and Vietnam points to another strong year of transaction activity in the sector,” said Rennie. “Recent clarifications and certainty around the Renewable Energy Target will also spur renewables activity in Australia.”
The Americas didn’t do badly, with convergence and diversification especially strong in the region during 2015. Transaction activity in the US accounted for 82% of the Americas’ total deal value, unsurprisingly, and 35% of total global deal value.
“Convergence and diversification remains an important deal driver in the US as companies rebalance operations in response to low wholesale prices, depressed load growth and changes in response to energy efficiency measures,” said Rennie. “Recent regulatory developments and five-year extensions to wind and solar tax credits will continue to bolster renewables investment in the country.”
“2015 was a transformational year for Africa and the Middle East’s power and utilities sector,” according to EY, “as governments advanced reforms aimed at attracting private capital.”
Meanwhile, according to EY, “Europe’s transforming power and utilities market prompted many to pursue deal-making to transition to new business models and explore new opportunities, such as energy services and customer solutions, through restructuring and expanding downstream operations.” In the end, transaction deal value for Europe totalled $39 billion, a 20% decline over 2014.