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Great expectations | Deal making in the renewable energy sector

The future looks bright for renewables. However, investors should remain cautiously optimistic as obstacles and risks remain.

Deal volumes in the renewable energy sector have increased every year since 2010, with 406 deals (worth EUR40.1 billion) in 2017, according to a new report by KPMG and Mergermarket.

The report, Great expectations | Deal making in the renewable energy sector canvassed the opinions of 200 senior-level investors from ASPAC, EMA and the Americas. The results reveal dealmakers are particularly focused on opportunities involving large-scale projects in countries with welcoming regulatory environments.

“Renewables have become a mainstream investment class. There is no shortage of capital available for renewable projects, particularly from institutional investors, but also from others like the oil and gas super majors, and we expect this trend to continue in 2018 and beyond,” said Mike Hayes, Global leader for renewables in KPMG. “As the renewables revolution continues, our clients are looking to us to help create the framework for a similar level of investment into innovative and emerging technologies in areas such as storage and biomass.”

Germany is at the heart of this investor activity, due to its stable regulatory landscape and continuous development plans for renewables. Respondents expect the country to see the biggest rise in M&A activity in the next 12 months, ranking it the western European country where they are most likely to invest.

China is attracting similar interest, based largely on its deep pockets and long term renewables strategy. The government plans to invest 2.5 trillion Yuan (US$377 billion) in renewable power generation as part of its 13th Five-Year Plan on Energy Development, increasing installed capacity to 680GW by 2020.

Only 15% of respondents say they expect France to see the biggest rise in M&A activity, slightly more than the US at 10%. However, a healthy percentage say that the election of President Macron makes them more likely to invest in renewables in France in future, whereas the current US administration’s move away from the Paris Agreement does not inspire confidence.

In terms of sub-sectors, 43% of respondents say offshore wind will see the biggest rise in M&A over the next 12 months, followed by hydropower (39%), photovoltaic solar (16%), and thermal solar (1%), while smaller scale technology like biogas remains under-represented.

As always, there are challenges to be overcome in renewables, not least of which is the transition from feed-in tariffs to auction-based support regimes and more recently, the emerging trend of subsidy free transactions.

According to 40% of respondents, this increases the risk that some low-price projects may never be built. It also encourages consolidation as falling strike prices will result in some developers struggling to raise low cost capital to make projects economically viable.

The report concludes that, overall, the future looks bright for renewables, particularly given the expected global increase in demand for additional green power. However, investors should remain cautiously optimistic as there remain obstacles to be overcome and risks to mitigate.


KPMG AG 2018

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