Power and utilities: US Deals 2023 outlook

Power and utilities’ deal resurgence

Macroeconomic and geopolitical pressures continue to broadly challenge the deal environment. However, positive influences in the sector drove a resurgence in deal activity in the latter part of the year — a trend that should continue as we move into 2023. These influences include more certainty on federal policy with the passing of the Inflation Reduction Act (IRA), continued support and emphasis on environmental, social and governance (ESG) strategies and broad investor interest in the sector’s asset classes, including renewables. Investor flight-to-quality behavior, or desire to move to less risky assets, also contributed to the interest.

While near-term deal activity accelerated following passage of the IRA, deal activity over the last twelve months (LTM) slowed somewhat in comparison to the rebound in deal activity observed in late 2020 and 2021.

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Deal activity amid macro pressures

Economic and geopolitical uncertainty remain a pressing factor. While executives in our latest PwC Pulse Survey show signs of optimism, 90% told us they’re concerned about macroeconomic conditions, more than any other issue. Deal activity in our 12-month lookback likely slowed in pace due, in part, to these pressures.

Power and utilities saw a decline in both deal volume and value during the LTM ending on November 15, 2022, as compared to full year 2020 and 2021. During this period, contributions from both strategic and inbound investors, as well as those focused on renewables, remained strong. The LTM saw 38 deals, down from 56 in 2021 and 42 in 2020. On a value basis, total deal value decreased to $37.9 billion, from $53.3 billion in 2021 and $48.4 billion in 2020. The two megadeals in the LTM, deals over $5 billion, drove 39% of total LTM deal value. Renewable deals drove 71% of LTM deal value.

While both deal volume and value took a step back, the investment themes continued to highlight the prioritization of ESG initiatives and investments in clean energy and infrastructure. As we progress into 2023, we expect increased certainty in federal policy, supportive ESG initiatives, broad investor interest and the rationalization of portfolios to continue to drive investment theses and deal activity in the sector.

Opportunistic M&A activity from a broad pool of investors is likely to continue, as additional clarity has been gained and macroeconomic factors are navigated.

Portfolio rationalization is expected to continue

Management teams in the sector continue to use the portfolio review process to allocate assets and drive returns amid macroeconomic pressures and the need to reassess portfolios against their core strategy and growth objectives. Companies that make timely and objective divestiture decisions and strategically manage their portfolios tend to be at an advantage in dynamic business environments, such as the one currently being navigated. An upcoming PwC study also has found that having a robust reinvestment plan can help companies be more open to divestitures.

We’ve seen divestitures become a key part of management strategy for power and utilities. These divestitures appear to be designed to ensure portfolios are aligned to core strategy and for future growth objectives. Assessment of core strategy and areas of growth varies across industry participants, with certain asset classes changing hands to allow each participant to approach the industry in strategically beneficial ways. We continue to see our industry evolve in ownership for various asset classes including nonregulated power generation, renewable exposure and utility investment. 

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Highlights of deal activity

  • In the LTM, the sector saw a decrease in deal value, down 29% from 2021 and 22% from 2020 levels.
  • Strategic players drove deal value, accounting for 64% of the total deal value, increasing from 36% in 2021.
  • Corporate deals dominated the sector, contributing to 77% of the total deal value, comparable to 79% in 2021.
  • Renewable deals surged, accounting for 71% of the total deal value and 79% of total deal volume for LTM, increasing from 32% and 52% in 2021, respectively.
  • Inbound investment accounted for 34% of deal volume and 55% of deal value — showing continued interest in the North American power and utilities sector by inbound investors.
  • The resurgence of megadeals remains, with two megadeals accounting for 39% of the total LTM deal value.

Top 10 LTM power and utility deals

  1. South Jersey Industries, Inc.
    Acquired by J.P. Morgan, $7.8 billion
  2. Con Edison Clean Energy Businesses, Inc.
    Acquired by RWE Renewables Americas, LLC, $6.8 billion
  3. Archaea Energy Inc.
    Acquired by BP p.l.c., $4.8 billion
  4. Great River Hydro, LLC
    Acquired by Hydro-Quebec International, Inc., $2 billion
  5. 50% stake in Clearway Energy Group
    Acquired by TotalEnergies SE, $1.6 billion
  6. Portfolio of landfill gas-to-electric facilities
    Acquired by NextEra Energy Resources, LLC, $1.1 billion
  7. Scout Clean Energy, LLC
    Acquired by Brookfield Asset Management Inc., $1 billion
  8. NEP Renewables, LLC
    Acquired by NextEra Energy Partners, LP, $9 million
  9. Midland Cogeneration
    Acquired by Capital Power Corp and Manulife, $9 million
  10. 50% interest in 2.5 GW Renewable Portfolio
    Acquired by Ontario Teachers’ Pension Plan Board, $8 million

“Decarbonization tailwinds, now supercharged with the Inflation Reduction Act, are expected to drive deals activity as investors rationalize portfolios and capital deployment into opportunities best supportive of their goals and investment avenues.”

— Jeremy Fago, US Power and Utilities Deals Leader

Key deal drivers

Company-led ESG efforts are expected to drive momentum and focus

The focus on ESG efforts 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 will continue to evolve ways in which they can pursue ESG initiatives, optimize and refine their ESG reporting and embrace purpose-led strategies.

Inflation Reduction Act creates new avenues for investments

Inflation, rising cost of capital, geopolitical pressures, and supply chain constraints create near-term headwinds for industry participants. However, we expect energy transition policies including the IRA to fuel significant capital investment and deal activity in the sector in the years to come. Federal policy certainty 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. 

Broad investor interest in the sector will drive competition for deals

While inflationary pressures, supply chain constraints and interest rate increases have the potential to challenge valuations, capital availability and the broadness of the investing pool will continue to enable deals. As industry participants navigate the deals market, the abundance of players, particularly 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, utilities) to more broad-based sector deal competition as ESG-driven investment and initiatives bring new players to the arena. With many deals commanding top dollar, the pressure to find value is rising. 

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Jeremy Fago

Jeremy Fago

Principal, Power & Utilities Deals Leader, PwC US

Kenyon Willhoit

Kenyon Willhoit

Power & Utilities Deals Principal, PwC US

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