A renewables buyout blip

The total value of M&A in the global renewable energy sector dropped by half in the second quarter but given strong investment levels, there is reason to believe the slowdown is just temporary.

The total value of mergers and acquisitions in the global renewable energy sector dropped by more than half in the second quarter, Ernst & Young said on Wednesday.

The main driver behind the fall was the United States and Europe's limited support for renewables over cheaper coal and gas, the accountancy firm said in a report.

The 55 deals in the second quarter had a combined value of $10.4 billion, against $21.7 billion from 56 deals in the previous quarter, as the market continued to consolidate amid fierce competition, low prices and tight demand.

A shift in focus to clean technology and energy efficiency, rather than traditional renewables such as wind and solar, helped to keep the number of deals stable.

Renewable energy in general has slipped down governments' agendas and prompted subsidy cuts in several countries, which have forced utilities and developers to look for investment opportunities in new markets such as Asia, Latin America and South America.

Difficult market conditions are hurting the smaller players, with the solar sector in particular having suffered some casualties, the report said.

In the second quarter, US solar equipment manufacturer Abound Solar filed for bankruptcy, while Germany's Centrotherm Photovoltaics filed for insolvency protection. General Electric halted plans to expand its manufacturing capacity in Colorado and Germany's Schott Solar closed its New Mexico plant.

"Major utilities and energy groups continued to rationalise their renewable energy portfolios through structured divestment programs to dispose of non-strategic businesses and assets, as they sought to deleverage their balance sheets," said Ben Warren, energy and environmental financial leader at Ernst & Young.

A separate report in January found that global renewable energy deals climbed 40 per cent to a record high of $53.5 billion last year, from $38.2 billion in 2010.

On a positive note, the slowdown may only be temporary. Transaction activity in China is expected to increase in the second half as solar and wind technology companies try to access new markets through the acquisition of development portfolios, Ernst & Young said.

China was the main contributor to a 24 per cent rise in new global investment in clean energy during the second quarter – to nearly $60 million – as large Chinese solar and wind projects raised millions of dollars of finance, research firm Bloomberg New Energy Finance estimated in June.

China remained the most attractive country for investment in renewable energy on an Ernst & Young index that ranks 40 countries according to their technologies and policies.

"Going forward, it has a number of challenges to overcome, such as the oversupply of wind turbines and solar panels, and resolving grid transmission issues," the report said.

Germany and the United States shared second place but show marked differences. The forthcoming US elections have led to a slowdown in the government's decision-making process, while Germany is pushing ahead with an ambitious renewable energy plan to replace nuclear power.

Britain moved up one place to fifth on the index, but only because Italy fell to sixth place on worsening economic conditions.

The UK's renewables support and decarbonisation strategy announcements in the second quarter all failed to create greater certainty in the market, the report said.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles