Wind and solar powering renewables M&A activity says PricewaterhouseCoopers report

TORONTO, March 12, 2009 — Strong M&A growth in the wind and solar power sector is adding to renewable energy deal momentum, according to a new analysis of deal making in the industry from PricewaterhouseCoopers (PwC). The study shows that solar overtook hydro as the second largest renewables deal category after wind, accounting for 20% of total renewables deals.

The impact of the credit crisis was felt in terms of value of deals dropping even though number of deals held up. Some of the key findings of the report were:

• A quarter of deals in the power sector are for renewable assets or technology.
• Renewable energy now accounts for one tenth of M&A value in the wider power sector.
• During 2007 and 2008, 441 renewables deals were announced with reported value totalling US$70.3 billion.
• Solar deals quadrupled in number and more than quadruped in total value in 2008 compared to the previous year. Average solar deal size also rose — from US$76.7 million in 2007 to US$89.3 million in 2008.

"Around the world, governments are implementing measures to increase the share of renewables in the power mix," says Leanne Sereda, leader of PwC Canada's Alternative Energy practice. "In Europe, the EU has set a target of 20% of final energy consumption to come from renewable sources by 2020. In the US, President Obama is keen to 'harness the sun and the winds and the soil to fuel cars and run factories'. In Canada, the recent Federal Budget earmarked $1 billion for clean energy research, development and demonstration projects and another $1 billion for green infrastructure projects."

Deal makers

The sale of a 25% stake in EDP Renováeis, the wind power arm of Portuguese power group EDP, to institutional investors headed the list of renewables deals in 2008. The EDP float raised US$2.8 billion.

Scottish & Southern Energy (SSE) was involved in another big deal acquiring Airtricity Holdings in Ireland in a deal worth US$2.1 billion, making SSE the largest owner of wind power assets in the UK. The two deals outside Europe in the top 10 were both hydro power assets. The importance of players from outside the sector is highlighted by the fact that only 16% of all 2008 renewables purchases were by alternative energy companies themselves.

Deal places

The focus for renewables deals became increasingly concentrated on Europe during 2007 and 2008 with a value of US$17 billion, whereas deal value in the rest of the world fell year on year by 63%. North America's share of worldwide renewables volume held broadly level with just under a quarter of worldwide deal value. In Canada, the 862 deals accounted for 13.7% of the total. Asia Pacific's year-on-year deal activity increased from 53 to 64 in 2008. Deal numbers rose everywhere, with the exception of Russia, South America and Africa.

Eight of the 10 largest 2008 solar deals were announced in the second half of the year with seven of them in the last four months, suggesting that momentum was unaffected by the autumn 2008 intensification of the banking crisis.

"Interest in solar deals is coming not just from within the energy sector," says Sereda. "The solar sector is attracting increased interest from wider industrial players seeking to play a part in the scaling up of the technology. Despite the credit crunch, interest in the sector is likely to remain lively especially as valuations fall making targets more attractive."

In contrast to Europe, North America renewables deal value was spread more evenly across four segments - hydro, wind, solar and biofuels. Hydro power accounted for the largest total North American deal value in 2008 but this was almost entirely attributable to one deal - GDF-Suez's US$1.9 billion purchase of FirstLight Power Enterprises.

The biofuel sector delivered the largest number of North American renewables transactions — with 22 deals totalling US$1.1 billion. Of these, 20 were in the US and the remaining two were small Canadian biomass transactions.

After hydro power, wind and solar power delivered the highest value deal segments, accounting for US$1.4 billion and US$1.3 billion of deal value respectively. The 20 North American wind power deals were split evenly number-wise between the US and Canada but the majority (US$977 million) of the US$1.4 billion total wind power deal value was in the US.

Technology and manufacturing deals

The report shows a growing trend of deals for manufacturing and technology assets higher up the renewables value chain. Between a quarter and a third (29.5%) of all 2008 renewables deals were for such assets — much higher than their 11% share in 2007. In many cases, these are moves by companies that are seeking to secure an end-to-end supply chain footprint. The trend is also being driven by the increasing interest of industrial groups and investment funds seeking to step up their presence in the sector.

"The renewable energy sector is an increasingly important arena as companies and investors respond to the growing role of renewable sources in meeting global energy demands — 2009 will be a watershed year," says Sereda. "Falling energy prices are casting doubt on the viability of some renewable energy schemes out there. However, governments have a chance to set a more certain framework for the industry."

Report methodology

Renewables Deals includes analysis of all global renewable power sector deal activity. We define this as all deals relating to power generation by bio fuels, solar, wind, hydro, tidal/wave and geothermal sources. We include deals relating to manufacturers and developers of renewable technologies (for example, wind turbine manufacturers and solar technology firms), which we identify in a separate 'technology' category. We exclude deals relating to nuclear power assets, those centred on energy efficiency, and purchases of development rights.

The analysis is based on published transactions from the Dealogic 'M&A Global' database, December 2008 and the John S. Herold Inc. 'M&A database', December 2008. Both datasets have been used to ensure completeness. Where deals appear in both, the data is based on that recorded in the Herold database. For consistency purposes, identical search criteria are used for both datasets. Analysis encompasses announced deals, including those pending financial and legal closure and those which are completed. Deal values are the consideration value announced or reported including any assumption of debt and liabilities. Figures relate to actual stake purchased and are not multiplied up to 100%.

The location of the assets being acquired determines the analysis location. We define Asia as excluding the Russian Federation, Australia and New Zealand. All presented numbers of deals exclude all of those deals with no reported value.

For more information please visit www.pwc.com/energy.

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