Press release

9 May 2019 London

Clean energy drives power and utility M&A activity amid overall decline in deal value

LONDON, 9 MAY 2019. Renewable M&A led the way in the global power and utilities (P&U) market in Q1 2019, making up 61% of total deal value and increasing by US$3.7b from Q4 2018, according to the EY report Power Transactions and Trends: Q1 2019 (PTT)

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  • Global total deal value declined 33% from Q4 2018 to $20.6b in Q1 2019 
  • 56% of deals involved renewables, contributing US$12.7b
  • 63% of executives expect to pursue M&A in the next 12 months

Renewable M&A led the way in the global power and utilities (P&U) market in Q1 2019, making up 61% of total deal value and increasing by US$3.7b from Q4 2018, according to the EY report Power Transactions and Trends: Q1 2019 (PTT). This was in spite of overall M&A headwinds as global deal value declined 33% from Q4 2018 to $20.6b in Q1 2019. 

While total deal value declined, P&U executives still feel positive about the deal making environment as reflected in the 20th EY Power & Utilities Global Capital Confidence Barometer (CCB), which finds a growing confidence in the P&U economy. This has resulted in a record high number of companies (63%, highest ever since the start of CCB in 2010) saying they will seek M&A in the next 12 months. P&U executives are confident of economic growth, with 94% of CCB respondents expecting global economic growth to improve and 92% anticipating growth within the utilities sector, a remarkable improvement from this time last year where results were 76% and 61%, respectively. Almost all respondents (97%) say they plan to make significant investments in technology this year. Eighty-four percent of respondents indicated technological innovation would have a very influential impact on their companies’ deal strategy.

Miles Huq, EY Global Transaction Advisory Services Power & Utilities Leader says: 

“The outlook for renewable energy transactions looks very positive, because we expect the clean energy market to continue to expand and attract investment from a variety of stakeholders, including strategic investors, financial sponsors, corporations and governments. In addition, convergence with other sectors, particularly oil and gas, should generate new capital flows into the sector. The 20th CCB survey reveals greater confidence and a healthy appetite for transactions in the sector driven by improving macro-economic parameters, increasing use of technology and increasing competition.” 

While the outlook for renewable energy is bright, governments continue to put pressure on traditional fossil fuel investment. In Europe, Greece and France announced new energy plans promoting renewable growth, Germany announced plans to close all of its 84 coal-powered plants by 2038 and the Norwegian Government has proposed phasing out oil and gas exploration and production companies from its US$1t sovereign wealth fund. In the US, local government continues to drive renewable progress with New Mexico joining California, Hawaii, Washington D.C. and Puerto Rico with 100% carbon-free goals.

Corporations are also setting their own renewable targets, with more than 150 companies pledging to use 100% renewable energy by 2050 through the global leadership initiative RE100. Indeed, corporations are now entering into power purchase agreements (PPAs) directly with renewable developers, bypassing local utilities. In March, more than 200 companies launched the Renewable Energy Buyers Alliance with the goal to bring 65 gigawatts of new renewable energy online by 2025. 

Renewables and emerging technology drive deal value in the Americas 

Sector deal value in the Americas dropped 35% from Q4 2018 to US$9.1b during the first quarter of 2019. Transaction themes included financial sponsor investment in renewables, cross-border investment into the US and Latin America, and portfolio restructuring as a result of shareholder activism or financial distress from nuclear and clean coal greenfield development. Renewables accounted for US$3.7b of deal value, dominated by seven multimillion-dollar deals.

Huq says: “There is continued pressure on generation assets in the Americas, with a number of coal and nuclear generators in financial distress. These developments play out against a backdrop of certain utilities changing their thinking, to ensure they are not getting left behind, and focusing on renewable and emerging technology investment. Utilities do need to ensure new investments align with corporate strategy as we have seen a number of divestments to restructure portfolios due to corporate distress or shareholder activism.”

Renewable megadeals shape the Europe M&A market 

In Europe, the P&U sector deal value dropped 27% from Q4 2018 to US$6.8b during the first quarter of 2019, with US$5.4b contributed by renewables assets in two mega deals. Motivated by corporate sustainability goals, German asset manager Commerz Real joined consortium members to buy an 80% stake in the 402 MW German offshore wind farm Veja Mate for US$2.6b, and Total Eren acquired NovEnergia II, a Luxembourg-based renewables company with a portfolio of 675 MW, for US$1.1b.

Huq says: “While financial investors have stepped up their game by acquiring renewable assets (US$3.9b), we are seeing increased greenfield investment commitments from utilities and sector convergence strategies. Big utilities in Europe have published plans to invest more than US$17b in renewables by 2022. Select oil majors have also announced plans to strategically transform their focus by consciously investing in power and utilities.”

Activity in the Asia-Pacific lead by China

Total deal value in the region cooled to US$4.1b, a 45% decline from Q4 2018. The renewables segment was the only segment to increase in deal value from Q4 2018, more than doubling to reach US$3.6b and forming 88% of deal value. The report reveals that much of the increase was due to the privatization of CP Clean Energy by China Power New Energy’s (80% of all renewables deal value). 

Huq says: “China remains the growth story in Asia-Pacific, with both domestic and outbound deals and a large focus on greenfield investment. Asia-Pacific is feeling the pressure of the slowing Chinese economic growth. This, coupled with continuing geopolitical tensions, weighed heavily on investors this quarter. Indeed, 92% of global respondents to the 20th Global Capital Confidence Barometer expect the changing geopolitical landscape to influence their deal strategy.” 

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About EY’s Global Power & Utilities Sector

In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. EY’s Global Power & Utilities Sector brings together a worldwide team of professionals to help you succeed — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Sector team works to anticipate market trends, identify their implications and develop points of view on relevant sector issues. Ultimately, this team enables us to help you meet your goals and compete more effectively.

For more information, please visit ey.com/powerandutilities.

About Power transactions and trends

The EY analysis and perspectives within Power transactions and trends are based on global financial releases and Mergermarket data, as well as global engagements conducted by EY member firms over the period 2012 to 2018. They provide an up-to-date assessment of outcomes and trends in the global utilities industry.

For more information, please visit ey.com/ptt.

About EY Global Capital Confidence Barometer

The EY Global Capital Confidence Barometer is a biannual survey compiled by Euromoney Institutional Investor Thought Leadership of more than 2,900 senior executives from large companies around the world and across industry sectors. This is the 20th biannual CCB in the series, which began in November 2009; respondents for the 20th edition were surveyed in March and April 2019. Respondents represented 14 industries, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, diversified industrial products, and construction and real estate. The objective of the Global Capital Confidence Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve. ey.com/ccb #EYCCB