Global utility M&A lags in Q1 of 2019 with renewable energy deals a bright spot

Energize Weekly, May 15, 2019

Power and utility sector mergers and acquisitions worldwide dropped to their lowest level since 2012 in the first quarter of 2019, but industry executives remain positive about deals for the year, according to a survey by Ernst & Young (E&Y).

The value of first-quarter deals was $20.6 billion, down 80 percent from the record $97 billion in the first quarter of 2018 and down 33 percent from the fourth quarter, E&Y, a financial consulting and accounting firm, said in its first-quarter Power Transaction Report.

The bright spot was renewable energy investments, which led the way in the first quarter, making up 61 percent of the deal value at $12.7 billion.

“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,” Miles Huq, leader of EY’s global transaction advisory services for the sector, said in a statement.

Investments in more traditional utility assets—coal, natural gas and nuclear plants—face a more uncertain future.

E&Y noted that governments are continuing to put pressure on these assets, with Germany announcing plans to close all of its 84 coal-fired plants by 2038, and France and Greece adopting new, renewable resource-oriented energy plans.

In the U.S., local governments continue to drive renewable progress with New Mexico, Nevada, Colorado and Washington joining California and Hawaii with 100 percent carbon-free goals.

“There is continued pressure on generation assets in the Americas, with a number of coal and nuclear generators in financial distress,” Huq said. “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.”

Corporations are also setting their own renewable targets. More than 150 companies have signed onto the RE100 pledge to use 100 percent renewable energy by 2050.

In Europe, E&Y said there were two renewable mega deals in the first quarter, worth a total of $5.4 billion, as a result of corporate sustainability goals. German asset manager Commerz Real joined consortium members to buy an 80 percent stake in the 402-megawatt German offshore wind farm Veja Mate for $2.6 billion. Total Eren, acquired NovEnergia II, a Luxembourg-based renewables company with a portfolio of 675 megawatts, for $1.1 billion.

Despite the uncertainty, E&Y’s “Power and Utilities Global Capital Confidence Barometer” (CCB) found that 63 percent of the companies surveyed—the highest level since the barometer started in 2010—said they plan to make acquisitions in the next 12 months.

“Power and utilities executives are confident of economic growth, with 94 percent of CCB respondents expecting global economic growth to improve and 92 percent anticipating growth within the utilities sector,” E&Y said. “Eighty-four percent of respondents indicated technological innovation would have a very influential impact on their companies’ deal strategy.”

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