Renewable energy deals hit record high
31 January 2012
Deal activity in the renewable energy sector is providing a rare spot of sunshine amid the gloom in world markets and the global economy. Over the past year the value of deals in renewables hit a record high - surging 40 per cent from US$38.2 billion in 2010 to US$53.5 billion in 2011, according to PwC's annual Renewable Deals: 2012 Outlook and 2011 Review.
In addition to the growth in deal activity 2011 will be remembered for a number of firsts; the value of individual deals in the wind, solar, biomass and energy efficiency fields broke through the $US1 billion barrier, with activity in these newer technologies finally exceeding that in hydro power, the heavyweight that has dominated the sector since PwC began measuring the sector in 2009.
PwC's lead partner in Energy, Utilities & Mining, Jock O'Callaghan, said it was a strong performance that occurred against a backdrop of volatile markets and global uncertainty over changing government policies.
"2011 can be seen as something of a watershed year and we can expect to see renewable sources such as wind and solar approach maturity in 2012 as the industry prepares for a long-awaited period of consolidation," Mr O'Callaghan said.
"The outcome will be fewer but bigger renewable energy players on the global stage - in other words, a more mature industry that will enjoy the benefits of economies of scale. This is good news for investors and for the industry."
The Australian Difference
Australia accounted for 15 per cent - equal to $683 million - of the value of deals in the Asia Pacific region, with wind comprising more than half the total, compared to 21% on a global basis.
"In Australia wind appears to be the dominant renewable energy for M&A deals, with solar emerging slowly, but with increasing interest in utility-scale projects."
Mr O'Callaghan said weak prices for wholesale electricity and renewable energy certificate prices (REC) were restricting new construction of renewable energy generation.
But he expected investment to grow as the target to generate 20 per cent of electricity from renewable sources by 2020 approached.
The growth would be enhanced with the introduction of a $23 price on carbon in July to help the renewable sector.
"At present the cheapest energy source remains coal, so while $23 is probably too low to trigger widespread investment in renewable energy what it does do is it erodes some of coal's competitive advantage and pushes renewables in the right direction."
"It gives the industry the certainty needed to review its long term portfolio and to assess whether they have the right generation mix.
"Over time, we would expect to see consolidation in the renewable sector as portfolios are developed," Mr O'Callaghan said.
The Asia Pacific - a generation focus
Despite the smaller size of the Asia Pacific market Mr O'Callaghan said the region had a greater focus on renewable energy, relative to the size of the market, than either Europe or North America.
Energy efficiency deals, which primarily make existing power networks more efficient, are a specialist subsector of the renewable deals. These deals make up 25 per cent of the North American deals market and almost 20 per cent of Europe. In contrast, such deals made up just 8 per cent of the Asia Pacific deals market.
"This tells us that the Asia Pacific is more about generation than simply improving the existing network, which benefits all generation types including fossil fuels," Mr O'Callaghan said. "Notwithstanding this, we expect smart grids, electric vehicles and other enabling technologies to become much more important over the coming years."
Where the big deals occurred - and where to in 2012
The $US15.3 billion increase in deal value was overwhelmingly due (amounting to 79 per cent) to activity in the wind and solar sectors. And, again for the first time, the number and value of deals in solar - $US15.8 billion - edged out the wind sector ($US15.5 billion).
And most of the deals (56 per cent) occurred in Europe, with the continent reclaiming the action from North America. European bidders were also the big drivers behind the value of deals, accounting for 48 per cent of the total.
Deal numbers in the Asia Pacific Region plummeted by almost 25 per cent but average deal size increased, resulting in total deals value rising 15 per cent to $US4.6 billion.
"While we believe activity will be centred in wind and solar, the macro-trend will be for major-alliances to be forged between players in the Asia Pacific, Europe and North America. This may drive consolidation activity.
"China can be expected to be a major participant. For example, the Chinese Government has stemmed the growth of turbine suppliers on the mainland and many of them will be looking elsewhere for growth. Major state-owned utilities are also being told to invest abroad rather than pile up cash at home."
"Similar drivers for cross-border investment in renewables exist in Japan and Korea, and investment from trading houses, utilities and technology companies from those countries will continue".
About PwC
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See pwc.com for more information.
"PwC" is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.
In addition to the growth in deal activity 2011 will be remembered for a number of firsts; the value of individual deals in the wind, solar, biomass and energy efficiency fields broke through the $US1 billion barrier, with activity in these newer technologies finally exceeding that in hydro power, the heavyweight that has dominated the sector since PwC began measuring the sector in 2009.
PwC's lead partner in Energy, Utilities & Mining, Jock O'Callaghan, said it was a strong performance that occurred against a backdrop of volatile markets and global uncertainty over changing government policies.
"2011 can be seen as something of a watershed year and we can expect to see renewable sources such as wind and solar approach maturity in 2012 as the industry prepares for a long-awaited period of consolidation," Mr O'Callaghan said.
"The outcome will be fewer but bigger renewable energy players on the global stage - in other words, a more mature industry that will enjoy the benefits of economies of scale. This is good news for investors and for the industry."
The Australian Difference
Australia accounted for 15 per cent - equal to $683 million - of the value of deals in the Asia Pacific region, with wind comprising more than half the total, compared to 21% on a global basis."In Australia wind appears to be the dominant renewable energy for M&A deals, with solar emerging slowly, but with increasing interest in utility-scale projects."
Mr O'Callaghan said weak prices for wholesale electricity and renewable energy certificate prices (REC) were restricting new construction of renewable energy generation.
But he expected investment to grow as the target to generate 20 per cent of electricity from renewable sources by 2020 approached.
The growth would be enhanced with the introduction of a $23 price on carbon in July to help the renewable sector.
"At present the cheapest energy source remains coal, so while $23 is probably too low to trigger widespread investment in renewable energy what it does do is it erodes some of coal's competitive advantage and pushes renewables in the right direction." "It gives the industry the certainty needed to review its long term portfolio and to assess whether they have the right generation mix.
"Over time, we would expect to see consolidation in the renewable sector as portfolios are developed," Mr O'Callaghan said.
The Asia Pacific - a generation focus
Despite the smaller size of the Asia Pacific market Mr O'Callaghan said the region had a greater focus on renewable energy, relative to the size of the market, than either Europe or North America.Energy efficiency deals, which primarily make existing power networks more efficient, are a specialist subsector of the renewable deals. These deals make up 25 per cent of the North American deals market and almost 20 per cent of Europe. In contrast, such deals made up just 8 per cent of the Asia Pacific deals market.
"This tells us that the Asia Pacific is more about generation than simply improving the existing network, which benefits all generation types including fossil fuels," Mr O'Callaghan said. "Notwithstanding this, we expect smart grids, electric vehicles and other enabling technologies to become much more important over the coming years."
Where the big deals occurred - and where to in 2012
The $US15.3 billion increase in deal value was overwhelmingly due (amounting to 79 per cent) to activity in the wind and solar sectors. And, again for the first time, the number and value of deals in solar - $US15.8 billion - edged out the wind sector ($US15.5 billion).And most of the deals (56 per cent) occurred in Europe, with the continent reclaiming the action from North America. European bidders were also the big drivers behind the value of deals, accounting for 48 per cent of the total.
Deal numbers in the Asia Pacific Region plummeted by almost 25 per cent but average deal size increased, resulting in total deals value rising 15 per cent to $US4.6 billion.
"While we believe activity will be centred in wind and solar, the macro-trend will be for major-alliances to be forged between players in the Asia Pacific, Europe and North America. This may drive consolidation activity.
"China can be expected to be a major participant. For example, the Chinese Government has stemmed the growth of turbine suppliers on the mainland and many of them will be looking elsewhere for growth. Major state-owned utilities are also being told to invest abroad rather than pile up cash at home."
"Similar drivers for cross-border investment in renewables exist in Japan and Korea, and investment from trading houses, utilities and technology companies from those countries will continue".
About PwC
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See pwc.com for more information."PwC" is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.
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