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EY anticipates rapid spread of decentralized renewable energy generation in Romania
A surge in gas and renewables deals in the third quarter of 2018 saw global power and utilities year-to-date deal value rise to a record US$241.8b, according to the EY Power transactions and trends: Q3 2018 (PTT). Despite ongoing regulatory uncertainty and geopolitical tension, the latest EY Global Capital Confidence Barometer (CCB) also indicates that 57% of global sector executives expect to pursue a deal in the next year, writes EY.
For our country, Valeriu Binig, Senior Advisor, EY Romania, anticipates “a rapid spread of decentralized solutions that use renewable energy sources, combined with storage solutions, in parallel with the intensification of transactional activity in the field of renewable production capacities” .
Gas utilities transactions reached an all-time quarter high in 3Q18, representing 59% of global deal value (US$36.5b), with more than half (51%) of those deals conducted in the Americas (US$18.3b). All regions continued to pursue investment in renewables, with 58 deals accounting for 41% of global deal volume. In Europe, renewables represented 78% of deal value (US$8.1b) and underpinned a weaker-than-expected quarter.
Following a record start to the year for M&A, deal activity across the sector remained buoyant despite a 25% quarter-on-quarter decline to US$61.9b from US$83b.
“Worldwide, financial investors are targeting electricity generating capabilities using renewable sources. This leads to an increase in the specific value of transactions with such assets, as compared to investments in network assets subject to regulators’ pressure. In many cases, various support schemes applied by the authorities intensify this trend”, said Valeriu Binig. In Europe, he added, we are witnessing vertical and horizontal consolidation (conventional generators buy renewable capacities to diversify their portfolio and increase their own production flexibility) combined with energy storage capacities.
Corporate Power Purchase Agreements (PPAs) are becoming increasingly frequent; thus corporations acquire electricity from renewable sources, guaranteeing their development as part of their effort to participate in climate change mitigation and as an assertion of the sustainability commitment.
Deal value in the Americas saw a 7% increase quarter-on-quarter to US$28.8b, representing nearly half (46%) of total global deal value. The third quarter demonstrated continued investment appetite for renewable energy assets amounting to US$4.5b, including Consolidated Edison’s announced US$2.1b acquisition of assets from Sempra Energy – further highlighting the impact of ongoing shareholder activism in the Americas. The US remained the top investment destination in the region, with 96% of deal value generated in the US market.
Despite a 78% decline in deal value in Europe to US$10.1b, offshore wind offered financial investors scale and strong returns, with US-based Global Infrastructure Partners agreeing to acquire a 50% stake in a 1.2 GW offshore wind farm from Danish company Ørsted A/S.
The conclusion of negotiations among the 28 EU Member States around the future framework of the electricity market is expected to strengthen investment certainty into Q4.
Asia-Pacific saw a 118% increase in deal value quarter-on-quarter to US$22.5b, with much of the value attributable to announced plans to acquire Australia’s APA Group for US$16.3b by CK Infrastructure, CK Asset and Power Assets Holdings. This deal was set to be the largest gas utility transaction to date, however, the federal government has issued a preliminary view that the deal may be blocked, with a formal determination to be issued shortly.
Economic confidence boosts sector deal making prospects. Looking ahead, the CCB indicates that sector leaders remain confident in the economy. With another year of strong GDP growth forecast, 86% of global power and utilities executives expect to see improving growth conditions over the next 12 months.