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Fewer Conventional Generation Opportunities Lead to Uptick in Renewable Energy Deals

Second-quarter deal value declined by 32% to US$30.8b in the global power and utilities sector in the wake of fewer high-value conventional generation investment opportunities, according to the EY report Power transactions and trends Q2 2017. Meanwhile, global deal volume grew from 115 in Q1 2017 to 134 in Q2 — a 17% increase.

Renewable energy deals accounted for nearly half (48%) of total deal volume in the sector. This trend was echoed most noticeably in the Asia-Pacific region where renewables made up 51% of second quarter deal volume.

The report shows how renewable energy asset valuations are increasing with demand. Renewable assets traded at high forward premiums to long-term price-to-earnings multiples across regions, with the trend most acute in Europe where the premium reached 79% in Q2 2017.

Energy reform initiatives also continued to drive deal activity in the second quarter, with asset privatization generating US$13.3b in deal value, which was 43% of total global deal value.

Matt Rennie, EY Global Power & Utilities Transactions Leader, said “With fewer opportunities for conventional generation investment in developed markets, we are seeing a decline in large-scale deals in the global power and utilities sector. Instead, the transaction landscape is moving toward smaller deals, driven in large part by renewable energy opportunities and asset privatizations as a result of governments seeking to aid economic growth.”

Europe was the only region to record an increase in power and utilities deal value quarter-on-quarter with US$10.6b — 12% higher than Q1 2017 and a 31% increase over the same period in 2016.

Americas deal value — the highest of all regions in Q1 2017 — declined by 72% to a four-year low of US$5.9b in Q2. The U.S. led this decline with quarterly deal value dropping 77% to US$4.4b. Sixty-percent of U.S. deals were domestic as outbound investment slowed in the country.

Rennie said “The decline in Americas deal value suggests that concerns over rising interest rates in the US and US federal policy changes may be taking their toll on investor confidence — but time will tell. Regardless, we expect the relentless march of renewables and energy reform initiatives to continue to spur an increase in deal volume globally.”

 

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