Nuclear scare means renewables taken seriously by dealmakers
Last year’s Fukushima nuclear plant disaster has had an interesting impact on the renewables sector. It is finally being given the attention it deserves by dealmakers, indicating to analysts that the sector is maturing and more deals may be on the way.
A new PricewaterhouseCoopers (PwC) report on M&A activity in the sector showed that deal values rose by a staggering 40 per cent in 2011 to $53.5 billion. This compared with $38.2 billion of deals the year before. While hydropower attracted most attention in 2010, wind and solar power drove the market last year, with deal values in solar alone rising by 56 per cent to $15.8 billion.
These ‘new generation’ renewable technologies are slipping further into the consciousness of the world’s decision makers, partly due to the impact of the Japanese earthquake in March 2011 and the effect this had on the Fukushima nuclear plant. The disaster was a wake-up call for many nations who had put nuclear at the center of their energy policies and a massive re-evaluation took place over the rest of the year. As a result, renewables have become a serious player in the international energy market for the first time, with the record deal values demonstrating the market’s new maturity.
PwC’s Paul Nillesen explained that there are several other factors driving the M&A activity in the solar and wind sectors. “Falling solar prices are making solar power more economic and closer to grid parity in some markets.” The PwC report also outlined the fact that pension funds have started investing in the offshore wind farm, which driving market maturity, along with news that some assets are already being sold for the second or third time.
Although it might seem that the growing cost pressures that manufacturers in Europe and China in particular may have a negative impact on the renewables sector, in terms of the market for M&A, it is actually driving consolidation. The news that Danish wind farm firm Vestas has issued two profit warnings in the last two quarters illustrates some of the pressures facing the industry but PwC expects these pressures to lead to a number of deals that ensure balance sheets remain strong to enable renewables firms to undertake larger and larger wind generation projects – particularly offshore.
The Eurozone crisis is having a slightly dampening effect on dealmaking, claims PwC and any further concerns will further dampen the likelihood of major deals in 2012 and beyond. However, Nillesen claims that waiting for conditions to improve could be a mistake for prospective dealmakers. He explained, “Staying out of the market in the hope that things will improve cannot be assumed to be the right strategy.
“The potential for further destabilisation domestically, or at an inter-governmental level cannot be ruled out, but if a deal is highly strategic, and mission critical, then parties will still feel it is worth doing on the right terms.”
Indeed, the outlook for 2012 is exciting for the renewables firms that have worked for decades to receive the kind of attention their technologies deserve. Nillesen said that he expects deal activity to be “significant” over the medium term, while his colleague Ronan O’Regan added that major “landmark wind power combinations” could emerge between players in Asia Pacific, the US and Europe.