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Power and utilities: US Deals 2024 outlook
Momentum continues for power and utilities deals
Recent easing in inflation, improved economic factors and positive influences in the sector — including the Inflation Reduction Act (IRA) and continued emphasis on sustainability strategies — have spurred a wave of investment in key asset classes.
Notably, renewable and clean energy deals drove more than half of the deals in the last 12 months ending November 15, showcasing significant interest from a broad pool of investors and a momentum shift since the passing of the IRA. That momentum should continue as we move into 2024.
While both deal volume and value over the last 12 months remain below the five-year average, they are favorable to 2022. We expect IRA-related momentum, supportive environmental, social and governance (ESG) initiatives, broad investor interest, portfolio realignment and the refocusing of strategic agendas to continue to drive investment prioritization and deal activity for the sector.
Key deal drivers
Opportunity amidst uncertainty
While inflationary pressures, supply chain constraints and interest rate increases have the potential to challenge valuations, recent easing, incentivized capital and broader investor interest are enabling deals. The abundance of players in the deals market, including those driven by ESG initiatives, is further increasing the competition for assets. And the playing field is evolving — from competition for individual asset classes (e.g., renewables, clean energy, utilities) — to more broad-based sector deal competition as ESG-driven investment and initiatives bring new players to the arena. With deal competition, the pressure to find value is rising.
The last 12 months saw 46 deals, up from 36 in 2022 and down from 56 during the historically active deals market of 2021. Similarly, total deal value totaled $39.4 billion, up from $36.3 billion in 2022 but down from $53.3 billion in 2021. But major activity is still to be found: One $6.6 billion megadeal accounted for 17% of deal value in the sector over the past 12 months. In addition to a focus on renewables and clean energy, contributions from both strategic and inbound investors remained strong. For instance, inbound deals represented 60% of deal value in the last 12 months, slightly up from 56% in 2022 and up from 35% in 2021.
Resilience and innovation for growth and sustainability
Inflation, rising cost of capital, geopolitical pressures and supply chain constraints have created headwinds for industry participants. However, we expect energy transition policies, including the IRA, and recent easing of macroeconomic factors to fuel significant capital investment and deal activity in the sector in the years to come. Since the passing of the IRA, 62 deals worth $59.5 billion have been announced, highlighting renewed momentum, particularly in renewables and clean energy in the sector.
Looking at the last 12 months, the power and utilities industry saw 26 renewable and clean energy deals, slightly down from 28 in 2022 and 29 in 2021. Federal policy has extended the runway for existing tax credits for wind and solar power, while also introducing new incentives and funding for driving investment in transmission, carbon capture, hydrogen and other clean technologies.
Necessity for business reinvention
Divestitures remain a key avenue for realigning portfolios and refocusing strategic agendas in the sector. Corporate leaders are strategically using deals to transform their companies in order to keep them relevant in a rapidly changing environment. PwC’s recent divestiture study found that companies that make timely and objective divestiture decisions and strategically manage their portfolios are at an advantage in this dynamic business environment. Divestitures can be a critical part of the transformation and reconfiguration process to create value and drive shareholder returns.
Additionally, the focus on sustainability is here to stay as indicated by recent deal activity related to climate change, social justice equality and diversity. In today’s market, investors and stakeholders are more frequently viewing social good and profitability as intertwined. Sector participants are expected to continue evolving ways in which they can pursue sustainability initiatives, optimize and refine their ESG reporting and embrace purpose-led strategies.
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