Global power and utilities deals reached an all-time high of $180bn in the first six months of the year, with renewables accounting for almost half of the second quarter’s $83bn volume, according to a new report for consultancy EY.
Investment in clean-energy continued to gain momentum during the quarter, as 63 renewables sector transactions totaling $12.9bn were closed, driven by an agenda, said EY in its Power Transactions and Trends: Q2 2018.
That agenda was set by the European Union’s agreement to target 32% renewables consumption by 2030 and several high-value “mega-deals” in the US together worth almost $4bn.
“The first half of 2018 reflects a complex deal environment characterised by a changing generation mix and a growing appetite for renewables investment, which will continue to drive the deal agenda into the second half of the year,” said Miles Huq, head of EY Global Power & Utilities Transactions.
Developing markets emerged as an investment destination for traditional mergers and acquisition (M&A), the EY report revealed, with Thailand and India hosting $5.3bn and $3.2bn in deals, respectively.
Estonia was the surprise package with transaction by both domestic and foreign investors in the Baltic nation totting up at $600m.
China pace-set global outbound investment in the second quarter with $31.2bn of announced cross-border energy deals, supported by the country’s One Belt, One Road state initiative.
EY did note that the $27.6bn takeover bid by Portugal’s EDP of China Three Gorges accounted for a large percentage of this total value.
M&A in Europe, having reached a record deal-value in the first quarter, when $63.1bn was transacted, “remains strong”, said Huq, constituting 55% of total power and utilities global sector agreements during the same period.
Second quarter deal-value in Asia-Pacific rocketed up 78% like-for-like compared to the second quarter of 2017, to $10.3bn, while renewables fuelling much of the regional activity, as 25 clean energy deals totaling $3.8bn were closed in this period.
In the Americas, the global upward trend was undercut by an 8% quarter-on-quarter decline in M&A, to US$26.9b, with seven “megadeals” totaling US$21.8b making up the lion’s share of the regional activity.
“US federal tax reforms are making an impact in the sector, with investor-owned gas and electric utilities preparing to return billions of dollars to ratepayers nationwide,” said Huq.
He added that with “several utility holding companies with competitive generation segments announc[ing] plans to raise capital through equity and debt issuances or plans to reduce capital expenditures to maintain credit metrics … further consolidation in the US is expected through 2018.”
The EY report highlighted utilities’ growing appetite for investment in new technologies during the second quarter as a trend-to-watch.
“Around the world, we are also seeing utilities companies increasingly exploring new technologies, including battery storage, electric vehicle infrastructure and digital grid technologies,” said Huq.
“With sector convergence on the rise, we are also seeing more non-conventional competitors emerge as the power and utilities landscape continues to undergo transformation.”
