Global power and utilities deal value declines year-on-year in 2016

London, 9 February 2017

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  • Regulated assets account for 46% of total deal value at US$89.3b
  • Increased deal value in Europe and the Americas expected to decline in 2017
  • Opportunities in Asia-Pacific and emerging markets to attract investment

Global power and utilities deal value fell 4% year-on-year to US$192.3b in 2016 compared to US$200b in 2015, according to EY report Power transactions and trends: 2016 review and 2017 outlook.

Regulated assets accounted for the greatest share of 2016 deal value (46%) with US$89.3b as investors continued to seek stable returns. Interest in renewable energy assets also remained high with deal value totaling US$28.4b – including 10 multibillion-dollar transactions. There were 46 renewable energy deals totaling US$8.3b in the Americas alone.

Last year also saw a noticeable trend – though smaller in scale – of some of the world’s biggest utilities investing in new energy technology, particularly in storage. Enel, Innogy and National Grid were among these companies. Deals involving new energy technology (storage, smart metering and electric vehicle charging) totaled US$898m.

Matt Rennie, EY Global Power & Utilities Transactions Leader, says:

“Investors face a difficult suite of choices due to ongoing low wholesale prices and an absence of new greenfield conventional generation deals in developed markets. The result in 2016 was a surge in valuations of network assets and power purchase agreement-backed renewables deals as investors sought methods of putting their money into safe, stable assets with guaranteed returns at scale. A noticeable shift in the appetite for new energy technology is underway as investors embrace the need to diversify.”

Europe sees highest yearly deal value in 2016 since 2012

Deal value in Europe’s power and utilities sector totaled US$51b in 2016 – the highest value since 2012. Activity in the fourth quarter accounted for more than half of the year’s deal value with US$27.8b. Transmission and distribution (T&D) transactions accounted for US$22.7b of deal value in the region. Excluding T&D assets, deal value fell 7% from 2015 as investment in generation and renewables dropped year-on-year.

Rennie says: “The dynamics of the European electricity market are increasingly challenging. Wholesale prices have halved in the last five years, resulting in significant losses for utilities. The result has been increased investment in more profitable regulated networks and renewable businesses and a drop-off in conventional generation assets.”

Uncertainty dulls outlook for Americas deal activity

The Americas power and utilities sector concluded 2016 at a six-year deal value high of more than US$99b. The majority of activity came at the start of the year, spurred by investor confidence and an abundance of capital. Deal value in the fourth quarter, however, fell to US$13.9b from US$26.3b in Q3 2016.

The US led transaction activity in the region with deal value totaling US$8.2b in Q4 2016. Rising interest rates could, however, dampen activity in 2017 while the impact of energy policy changes in the country are still not clear.

Investment opportunities abound in Asia-Pacific

Asia-Pacific power and utilities deal value reached US$23b in Q4 2016 – more than four times that of Q3 2016 (US$5.7b). Fifty-five percent (US$12.7b) of total deal value in the region came from T&D assets.

Rennie says: “Asia-Pacific offers a diverse range of investment opportunities, from renewable energy to development of conventional generation assets in countries with a supply and demand imbalance and energy reform. This, coupled with a more stable political environment, will attract ongoing investment in 2017, particularly from Europe and the Americas.”

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About EY’s Global Power & Utilities Sector
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About the report
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 2016. They can provide an up-to-date assessment of outcomes and trends in the global utilities industry.