The FINANCIAL — Global power and utilities transaction activity maintained momentum in the fourth quarter with deal value ending 2015 up 13% from 2014 at US$200b — a six-year high, according to EY’s Power transactions and trends: 2015 review and 2016 outlook.
Renewables accounted for 50% of transactions with 245 deals generating US$68b, showing that investors around the world remain focused on adding wind and solar assets to their portfolios to comply with regulations and reduce exposure to increasingly volatile commodities.
Alongside renewables, cross-sector convergence and midstream/upstream investment were primary deal drivers for utilities seeking new avenues for growth. Transactions involving convergence totalled US$33b in 2015.
Matt Rennie, EY’s Global Power & Utilities Transactions Leader, says:
“Utilities are increasingly joining forces with firms outside the sector to capitalize on synergies and shared experience. Electricity and gas megamergers in the US, telecommunications deals in Japan and tech-driven partnerships in Europe highlight the pursuit of innovative growth across the sector throughout 2015.”
Convergence and diversification was especially strong in the Americas throughout last year as utilities sought strategic transactions to withstand economic volatility. Transaction activity in the US accounted for 82% of Americas deal value and 35% of total global deal value.
Rennie says: “Convergence and diversification remains an important deal driver in the US as companies rebalance operations in response to low wholesale prices, depressed load growth and changes in response to energy efficiency measures.
“Recent regulatory developments and five-year extensions to wind and solar tax credits will continue to bolster renewables investment in the country.”
Africa and the Middle East
2015 was a transformational year for Africa and the Middle East’s power and utilities sector as governments advanced reforms aimed at attracting private capital.
Investor interest in the region focused on new generation capacity, particularly around renewables. Declining oil prices also sparked infrastructure opportunities and encouraged utilities in the Middle East to diversify funding strategies.
Asia-Pacific led transaction activity with domestic and outbound deals in China and energy reforms resulting in a 100% increase in regional deal value over 2014.
Deal activity in China is expected to remain strong despite the economy showing signs of a slowdown. The country accounted for US$51.7b and 69% of total regional deal value in 2015.
Rennie says: “The need for new generation capacity across the region alongside energy reforms in China, India, Japan and Vietnam points to another strong year of transaction activity in the sector. Recent clarifications and certainty around the Renewable Energy Target will also spur renewables activity in Australia.”
Europe’s transforming power and utilities market prompted many to pursue deal-making to transition to new business models and explore new opportunities, such as energy services and customer solutions, through restructuring and expanding downstream operations. Transaction deal value totalled US$39b in 2015 — a 20% decline over 2014 despite a fourth quarter increase.