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Power transactions and trends: 2016 review and 2017 outlook


Networks drive deal value as generation continues to struggle

At first glance, it appears Europe’s P&U sector experienced a strong 2016, hosting deals worth US$51b – the highest yearly deal value since 2012.

However, in Q4, nearly 82% of the quarter’s total deal value occurred in T&D, accounting for US$22.7b in deals. While investment in T&D has grown from US$15.5b in 2015 to US$29.1b in 2016, investment in generation dropped from US$1.4b to US$.4b and investment in renewables also dropped from US$18.6b to US$12.2b.

In 2016, wholesale electricity prices, which have fallen 55% since 2011, sunk to levels not seen for 12 years, creating increased challenges for the generation sector.  During the first nine months of 2016, E.ON reported net losses of US$9.3b, including US$6.3b of impairment charges. Both RWE and E.ON separated their loss-making conventional generation businesses from profitable regulated networks and renewable businesses.

While the dynamics of the European electricity market are challenging, investors are looking to complete more complex transactions in order to deliver returns.  In November, Enel announced a US$5b investment in the digitization of its grid assets.  In December, E.ON invested in Kite Power Solutions, a UK-based start-up working in high-altitude wind power generation technology. In August, Innogy expanded its energy storage focus by acquiring PV and storage company BELECTRIC Solar & Battery. That same month, National Grid procured 201 MW of energy storage capacity for US$86.4m.

Given the challenges in the European market, we expect investors to deploy capital into international markets in 2017, bringing a competitive edge in their knowledge of nontraditional complex transactions.

Q4 2016 highlights

  • Retail assets targeted in geographical expansion: utilities, including Engie and Edison S.p.A, are acquiring retailers across the continent to achieve operational synergies and scale.
  • Financial investors focus on T&D assets: after 10 quarters of limited activity, financial investors invested US$22b in Europe in Q4, acquiring gas and electricity T&D assets in some of the region’s top deals of the quarter.
  • Stakeholders privatize assets to raise cash: after a failed process, Greece plans a fresh tender to sell gas network operator DESFA. In Switzerland, Alpiq Grid Beteiligungs AG divested a 30.3% equity holding of transmission grid Swissgrid AG to BKW Netzbeteiligung.
  • Increased presence in electric vehicle infrastructure: challenges in core businesses are driving investment in nontraditional opportunities, including electric vehicle infrastructure. E.ON has established a business unit to expand into electric vehicle charging infrastructure. Innogy also announced a new eMobility business unit to develop solutions for electric vehicle charging points, payment systems and network infrastructure in the US and Europe.


EY - Q4 2016 highlights


Top five deals, Q4 2016

Announcement date (2016)


Target country


Bidder country

Deal value (US$m)



18 December

National Grid Gas Distribution Ltd (61% stake)


Enel S.p.A.



Divestment will help national grid to rebalance towards higher-growth markets, strengthen their balance sheet and support a sustainable dividend policy.

T&D: gas

14 December

Réseau de Transport d’Electricité (49.9% stake)


Energie Baden-
WürttembergAG (EnBW)



Divestment will help parent company EDF raise cash and support capital needs.


17 October

Energeticky a Prumyslovy Holding, a.s. (35% stake)


DEA Deutsche Erdoel AG



Deal will help inorganic growth of EPH.

Other: integrated

17 October

Energeticky a Prumyslovy Holding, a.s. (30% stake)

Czech Republic

Cheung Kong Infrastructure Holdings Limited; Power Assets Holdings Limited

Hong Kong


Deal will help EP Investment and Miles Limited to consolidate their ownership positions.

Other: integrated

6 December

EP Infrastructure, a.s. (30% stake)


Oaktree Capital Management, L.P.



Deal will boost financial and strategic position of EPIF.

T&D: gas


Valuations snapshot

Regulated assets continue to command high valuations

Regulated assets were trading at a premium of 13.6% in Q4, based on average FY2 earnings-per-share (EPS) multiples. However, these figures are decreasing quarter on quarter, with Q4 valuations 11% lower than those of Q3. While this change is small, it could signal the emerging impact of disruptive technologies on investor confidence in T&D valuations over the longer term.

Valuations of generation assets and IPPs decreased in Q4, trading at a discount of 13% to the long-term average enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA) values. As wholesale prices remain depressed and utilities face increasing regulatory pressures, many are divesting non-profitable business operations. E.ON and RWE spun off their conventional generation businesses in 2016 to focus on regulated networks, energy services and renewable business opportunities. Utilities are also shedding coal businesses. Vattenfall sold its German coal generation business to a Czech consortium in September. In December, EDF announced plans to sell its coal trading business to Jera and plans to divest US$11b of coal assets by 2020.

Some European governments have moved to end uncertainty in nuclear generation. Germany approved draft legislation allowing nuclear plant operators to externalize their nuclear waste storage liabilities into a ring-fenced fund, fixing the cost of storing nuclear waste in exchange for an average 35% premium to the book value of the liabilities. This should see utilities, such as E.ON and RWE, offset risks and perform better. The UK Government’s September approval of the Hinkley Point C nuclear power plant has also helped bring clarity to nuclear investment.

Conventional power generators and international energy providers are acquiring retail assets to diversify operations and create synergies for a declining generation sector. In November, Engie announced plans to enter the UK retail market, while Italy’s Edison S.p.A plans to acquire the Italian retail business of Eni. In December, UK-based generator Drax announced plans to buy energy retailer Opus for US$437m. Increasing regulatory scrutiny and pressure to decrease retail tariffs may introduce a complicated operating environment for retailers in 2017; however, international expansion helps achieve increased scale. According to a report from Ofgem, the UK’s power regulator, 14 new retailers entered the market between April 2015 and March 2016.

Renewable energy assets continue to attract attention with high volumes and low values. Investors acquired US$12.2b of these assets this year. The IPOs of Dong and Innogy remained the year’s largest IPOs in the sector. More greenfield and brownfield investment is expected in the segment as governments shift toward a cleaner energy mix.

Regulated T&D

Average price/earnings (P/E) trading multiples for select T&D utilities

(On FY2 consensus EPS estimates, 2010–Q4 2016)

EY - Chart 3: Average price/earnings (P/E) trading multiples for select T&D utilities (On FY2 consensus EPS estimates, 2010–Q4 2016)

Sources: EY analysis based on Mergermarket data

Generation and IPPs

Average EV/EBITDA trading multiples for select IPPs

(On FY2 consensus EBITDA estimates, 2011–Q4 2016)

EY - Chart 4: Average EV/EBITDA trading multiples for select IPPs (On FY2 consensus EBITDA estimates, 2011–Q4 2016)

Sources: EY analysis based on Mergermarket data

Integrated and diversified

Chart 5: Average EV/EBITDA trading multiples for select diversified utilities

(On FY2 consensus EBITDA estimates, 2010–Q4 2016)

EY - Chart 5: Average EV/EBITDA trading multiples for select diversified utilities

Sources: EY analysis based on Mergermarket data


2016 M&A hotspots and capital outlook

Deals in renewable energy and new technologies to drive M&A

The ongoing transformation of Europe’s P&U sector is reshaping M&A strategy. In 2017, the impacts of political changes, such as Brexit, the Italian referendum and other elections, will become more visible. We see four key themes emerging that will help drive the sector:

  • Financial investors doing big-ticket deals: in 2016, financial investors made deals worth US$37.7b, including seven multibillion- dollar transactions. As European utilities struggle with weaker balance sheets, more big M&A will be fueled by financial investors.
  • Investments moving toward nontraditional opportunities: as revenue from traditional business diminishes, utilities will seek different energy opportunities to increase investment yields. In July, E.ON partnered with Solarwatt to introduce electricity storage systems to Germany. German utility SWW Wunsiedel is planning to deploy a large-scale battery storage system to help balance the local grid.
  • Growth in renewable energy investment increasing: ambitious programs to boost renewable energy capacity will drive investment. In the first half of 2017, Spain will hold a reverse bidding capacity auction to award 3 GW of renewable energy capacity. Greece now requires new large renewable energy capacity to be based on competitive tenders. France has reset its 2023 renewable energy targets, planning to increase solar energy capacity to 20.2 GW.
  • More focus on customer relationships and energy services: utilities are making strategic investments in digitization and data analytics to support an enhanced customer relationship. RWE is reportedly testing blockchain technology for EV charging and a platform that allows consumers to trade green energy independently of utilities. Fortum is also planning a pilot in 2017 to test connected home technology that will allow customers to manage their electrical appliances over the internet.
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United Kingdom

Deal value

Deal volume

Capital outlook



  • Continued coal power plant retirements raise concerns around security of supply and may boost new gas-fired generation, pending an increase in capacity prices to support private investment.
  • A government plan will invest US$75b in utilities by 2020, with half of the funding from the private sector.
  • The awarding of around 3.2 GW of energy storage contracts in recent capacity mechanism auctions signals a new focus on energy services, energy storage and demand-side response.

Power transactions and trends | Q4 2016 - Europe



Deal value

Deal volume

Capital outlook



  • Nuclear policy changes will remove uncertainty and reduce risks for utilities.
  • Federal incentives for renewable energy investment, especially in solar, have been scaled back, though local policies should support continued growth.
  • Introduction of capacity auctions for renewables will encourage cost competitiveness in construction, but may slow growth.

Power transactions and trends | Q4 2016 - Europe



Deal value

Deal volume

Capital outlook



  • New renewable energy targets will triple solar energy to 20.2 GW by 2023.
  • The launch of a 3 GW solar tender in August will spike renewable energy investment.

Power transactions and trends | Q4 2016 - Europe


EY Europe Transaction Advisory Services (TAS) P&U contacts

Matt Rennie
Global TAS Power & Utilities Leader
Brisbane, Australia
+61 7 3011 3239

Arnaud De Giovanni
Head of TAS Power & Utilities, EMEIA
Paris, France
+33 155 61 04 18

Remigiusz Chlewicki
Central & Southern Europe TAS
Power & Utilities Leader
Warsaw, Poland
+48 22 557 74 57

René Coenradie
BeNe TAS Power & Utilities Leader
Rotterdam, Netherlands
+31 88 407 8777

Edgars Ragels
CIS TAS Power & Utilities Leader
Moscow, Russia
+7 495 755 9724

Umberto Nobile
Mediterranean TAS Power & Utilities Leader
Milan, Italy
+39 0280669744

Martin Selter
GSA TAS Power & Utilities Leader
Berlin, Germany
+49 30 25471 21284

Stéphane Kraft
FraMaLux TAS Power & Utilities Leader
Paris, France
+33 1 55 61 09 28

Michael Bruhn
Nordics TAS Power & Utilities Leader
Copenhagen, Denmark
+45 2529 3135

Ian Whitlock
UKI TAS Power & Utilities Leader
London, UK
+44 20 7951 0892