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Power transactions and trends | Q4 2017

Will 2018 mark the start of a new era in energy investment?

The global energy sector is evolving – and so too are the investment drivers behind it. We are on the edge of a new era in power and utilities (P&U) M&A, characterized by a changing generation paradigm and a stronger commercial case for new technologies that are starting to prove their benefits.

EY - Global Infographic

Global P&U deal value by segment
(announced asset and corporate-level deals, 2013-2017)

EY - Global P&U deal value by segment

Global P&U deal value and volume by region
(announced asset and corporate-level deals, 2013-2017)

EY - Global P&U deal value and volume by region

Source: EY analysis based on Mergermarket data.


Our 2017 review of transactions and trends within the global P&U sector reveals that utility assets remain prized by investors the world over. In 2017, deals in P&U hit an eight-year high in terms of both value (US$200.2b) and volume (516).

Key figures:

  • US$63.3b deal value in networks
  • US$55.1b deal value in “others,” including integrated and water and wastewater
  • US$42.8b deal value in renewables
  • US$39b deal value in generation
  • 35 multibillion-dollar transactions, contributing 77% of total deal value
  • 10% increase in deal volume from 2016 driven by a 28% rise in renewable energy deals
  • Corporate buyers investing 1.6x more than financial investors

Read the full report here

Three themes dominate utilities investment

Buyers favor safe bets with long-term stable returns

Half of all 2017 deal value – US$100.3b – was contributed by transmission and distribution (T&D) and integrated assets, with investors seeking their safe returns. Buyers were also attracted to renewable energy assets backed by a power purchase agreement (PPA).

Distressed IPP sales boost deal value

Highly leveraged independent power producers (IPPs) are not supported by current market fundamentals, and we’re seeing more consolidation and sales of these distressed assets, particularly in Europe and the US. Buyers aim to reduce debt of the IPPs and capture operational synergies.

US was the top investment destination

The US attracted US$87.9b in deals, though most of this was domestic investment. Canada and China were the top outbound investors, investing $25.3b and $21.5b overseas, respectively.

Global investment flows inbound and outbound by country, 2017

EY - Global investment flows inbound and outbound by country, 2017

Source: EY analysis based on Mergermarket data.

How will an evolving energy ecosystem change investors’ priorities in 2018?

2018 looks set to be an interesting year for P&U M&A. The global economy is bouncing back, while capital markets tighten. Meanwhile, the energy sector is being reshaped by new technology and consumer demands. Against this backdrop, we expect three trends to emerge in utilities investment.

Interest rate increases may dampen investment in networks: Deals in T&D assets declined in value in 2017, and rising interest rates may see their appeal fall further. Current trading figures for networks suggest that they are overvalued, which may encourage investors to look instead to growth markets for superior returns in 2018.

Emergence of a new generation paradigm: Globally, investment in coal power is receding as renewables take the spotlight. But increasing clean energy projects may create bottlenecks as the PPA market tightens. While M&A in renewables will still grow, expect more focus on the economics of merchant generation. Gas will become more important to support system flexibility as coal disappears.

Investment in new technology to increase: In 2018, we’ll start to see the market benefits of investment in large-scale storage to support the grid as more renewables come online. This should encourage further investment, particularly as regulators and network operators move to address market design issues, including reducing settlement times.

We also expect to see an increased focus on digital in energy retail. Over the last two years, new energy-focused startups have raised US$746m of funding through series A and B rounds, of which US$253m of this focused specifically on energy services. Expect interest in this space to increase as retailers embrace a customer-focused, digitally enabled service offering. One energy retailer in Singapore, Red Dot Power, is leading the way by using a strong digital platform to create value for customers and reduce costs. Read more about Red Dot Power and CEO Vijay Sirse here.