M&A activity within the renewable energy industry is on a definite upward trend and Europe is proving to be the epicenter for the activity, according to reports.
The Thomson Reuters’ Deals Insight report from earlier this year showed that the first quarter of 2011 already enjoyed an increase in M&A activity in the sector, with 171 deals announced, compared with 157 deals over the same period in 2010. Some 48 per cent of the first quarter deals involved mergers or acquisitions with European renewables firms.
Activity in the second quarter continued strongly and a Rödl & Partner report concluded that there is more M&A activity set to take place in the 12 months to come. The researchers questioned 100 senior M&A dealmakers who are working within the renewables sector. Some 72 per cent said that they expected more M&A activity in the sector over the next year.
Major deals so far this year have included Electricite de France SA’s bid to take a 50 per cent stake of Energies Nouvelles SA for EUR 1.5 billion. Iberdola’s 20 per cent stake deal with Iberdrola Renovables is also worth an impressive EUR 2.6 billion.
Solar and wind projects are reportedly attracting the most M&A activity, while biomass is also proving increasingly popular as a valid source of renewable energy and an attractive investment.
The positive attitude towards the amount of activity in the renewables sector is being driven by several factors. The disaster at Fukushima nuclear plant in the aftermath of the devastating earthquake and tsunami in Japan is a major factor that was brought up time and time again by those questioned by Rödl & Partner. The tragedy has prompted a review of nuclear energy plants and is thought to have sparked more interest in investing in renewables instead.
Other respondents claimed that the revolutionary activity in Northern Africa and the Middle East has sparked a move towards renewable energy and the world’s oil supplies have come under greater threat.
Although Europe’s popularity as a target for renewable industry M&A deals has also been attributed to several different factors, most come down to the simple fact that Europe has more renewable firms due to its ambitious climate change directives. These include the RES Directive, which aims to ensure that 20 per cent of the continent’s domestic energy consumption is sourced from renewables by 2020.
The variety of renewable resources available in Europe was also cited as a reason for the active M&A market by the Rödl & Partner survey respondents – one of whom stated: Europe has a great diversity: “The Nordics are great for wind power; Italy, Spain and Greece for solar; and continental Europe for geothermal and biomass.”
Government initiatives could help boost M&A in the market even further, according to the dealmakers questioned. Rödl & Partner claimed 72 per cent said they expected government support to help drive the rise in renewables M&A activity in years to come. A third said they thought feed-in tariffs were the most effective way for the government to support deals in renewables, with Germany’s feed-in tariff named as an effective example of how a government has strengthened investment in the industry.
In conclusion, more major renewables M&A deals are expected in the coming 12 months as traditional energy firms look to acquire more renewable assets. Competition in the sector is high and prices are likely to reflect this. Government incentives in European nations like Italy and Germany, along with the diverse range of renewable projects taking place in Europe, will help to ensure the majority of the deals take place in this region.
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