Utility and power sector investments reach a record $180 billion in first half of 2018

Energize Weekly, September 12, 2018

Utility and power sector deals globally hit a record $180 billion in the first half of 2018, spurred by industry consolidation and renewable energy investments, according to a report by Ernst & Young (EY).

The accounting and consulting firm’s second quarter “Power Transactions and Trends” report shows record investment even as deals cooled in the second quarter.

There were $83 billion in mergers and acquisitions (M&A) and equity offerings in the second quarter of 2018, with renewable energy projects accounting for 46 percent of the activity.

U.S deals in the second quarter tallied $26.9 billion, down 8 percent from the first quarter, but the U.S. still dominated M&A activity for the period.

“Revenue pressures from tax reform and subdued demand are prompting further consolidation of integrated utilities—a trend that will drive M&A through 2018,” Miles Huq, EY Global Power and Utilities Transaction leader, said in a presentation.

The biggest U.S. deals in the second quarter were CenterPoint Energy’s $8.1 billion bid for Vectren and NextEra Energy’s $5.8 billion bid for Gulf Power. 

“More than half of the quarter’s deals $13.8 billion was contributed by two corporate acquisitions of integrated utilities looking to expand their customer base,” the EY report said.

In the face of federal tax reform, which reduced the amount of cash utilities hold, some companies are raising capital. In May, Allentown, Pa.-based PPL Corp. launched the largest capital offering in the sector to raise $1.7 billion.

In June, New Orleans-based Entergy Corp. raised $1.2 billion. Southern Company and Duke Energy have announced plans to raise additional equity this year.

Europe deal values for the second quarter were $45.7 billion, down 26 percent from the previous quarter. Asia deals totaled $10.3 billion, up 78 percent quarter over quarter. The largest deal was the $5.2 billion acquisition of 69.1 percent of Thailand’s Glow Energy Public Co. by another Thai utility PTT.

Globally, China, with its “Belt and Road Initiative,” was the leader in outbound investment with $32.1 billion announced for cross-border energy deals.

The largest single transaction was the $27.4 billion bid by China Three Gorges to take over Portugal’s EDP, owner of transmission and distribution assets across Europe.

The quarter saw the emergence of several new countries with significant deal activity, including Thailand, India with $3.2 billion in deals, and Estonia with $600 million in investments.

“Latin America continues to be an investment hot spot,” EY said. Bow Power, a Spanish utility, is planning to build a 157-MW solar photovoltaic plant in Peru with investment totaling $215 million, and Brazil is set to attract “huge investment over the next few years,” including $38 billion from the State Grid Corporation of China.

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