Renewable energy is top of mind for a variety of stakeholders, including strategic investors, financial sponsors, corporations and governments.
As seen in the EY Power Transactions and Trends Q1 2019 report, clean energy deals continue to dominate the M&A universe, making up 56% of deal volume and 61% of deal value in Q1 2019. Stakeholders across the power and utilities value chain continue to drive the need for more renewables:
- Strategic investors: In Europe, ENGIE has announced plans to invest between US$12.4b and US$13.5b in renewables and behind-the-meter solutions. Enel says it will develop 11.6 GW of renewable capacity by 2021. Meanwhile, utilities in the US are expected to spend US$12.5b in renewable energy capital expenditures in 2019.
- Financial sponsors: Kohlberg Kravis Roberts & Co. L.P. (KKR) agreed to make a US$900m equity investment in NextEra Energy Partners to facilitate the acquisition of a 611 MW renewables portfolio.
- Governments: In Europe, Greece and France announced new energy plans promoting renewables growth, while in the US, local government continues to drive renewables progress with New Mexico joining California, Hawaii, Washington, DC and Puerto Rico with 100% carbon-free goals. In Asia-Pacific, India has set a target of 100 GW of solar power by 2022.
- Corporations: In the US, over 200 companies, including Google and Facebook, launched the Renewable Energy Buyers Alliance with the goal to bring 60 GW of new renewables online in the US by 2025.
The growth in clean energy has created investment challenges for the legacy fossil fuel industry. The Norwegian Government has proposed the phaseout of oil and gas exploration and production companies from its US$1t sovereign wealth fund. The German Government announced plans to shut all of its 84 coal-powered plants by 2038 and replace them with renewable energy plants. This energy transition is seeing the emergence of major oil and gas players as challengers to the traditional power and utilities market – Royal Dutch Shell has announced its ambition to become the world’s largest electricity company by 2035.
M&A headwinds emerge in Q1
2018 saw a record high in P&U deal value and volume; however, Q1 2019 deal value declined 33% from Q4 2018 levels. Only renewables and water and wastewater deal value increased quarter over quarter. These falling deal values are a continuing trend – the majority of 2018 deal value occurred in the first two quarters. Investors are grappling with a more complex M&A environment driven by concern around interest rates and political tension.