This report provides insight into global mergers & acquisitions (M&A) activity in the renewable energy sector. The findings are based on a survey of 500 senior executives active in the renewable energy industry worldwide. The survey and report were written in collaboration with Clean Energy pipeline, a specialist renewable energy research and data provider. Transaction data and statistics included in the report have been extracted directly from Clean Energy pipeline’s databases. Clean Energy pipeline is a division of VB/Research.
The renewables country “A-List”
USA: a safe bet despite looming policy uncertainties
The USA remains the most attractive market for renewable energy investment. Over 50 percent of survey respondents expect to target the USA during the next 18 months, a similar number to last year. Significantly US M&A deal values accelerated during the past twelve months whilst activity in other regions stagnated or declined – the total value of US M&A transactions totaled US$9.4bn in 2010, almost double the US$5.4bn recorded in 2009.
One of the reasons why the USA remains such a popular market for renewable energy investment is that companies and investors worldwide view it as a stable investment environment. The lure of the US has not been lost on Asia-Pacific respondents, being their third most popular country for investment (40 percent) behind India (58 percent) and China (57 percent). European respondents are equally enamored placing the US ahead of many other European countries including Italy and Spain.
The attractiveness of the US is underpinned by the Obama administration’s determination that renewable energy plays a vital role in accelerating the country’s economic recovery. The President’s stated aim is for 80 percent of US energy to be derived from clean sources by 2035. This goal is being supported by a variety of incentive schemes, including the loan guarantee program, investment tax credits, production tax credits and state-level renewable energy standards.
With the US wind industry in some difficulty, many industry experts are predicting solar energy to play an increasingly strong part in meeting these objectives.
“We estimate that the US will be the largest solar market in the world by 2014,” explained Eric Hafter, Senior Vice President, Sharp Solar Energy Solutions Group.
“Not having a market presence here would be like not being in Spain a few years ago or Germany in 2004.” Hafter expects non-US companies to acquire and partner with local project developers in order to gain a foothold in this burgeoning market. “There is a reason why we are seeing Spanish and German developers come to the US,” he said. “The problem is that they lose the basic tenet of development which is that development is always local. Partnering with local developers is the only way to be successful in an unfamiliar market.”
The cloud looming on the horizon for renewable energy, is the growing influence of the Republican Party on US political decision making. The Republican Party is threatening to remove many of the incentives that have enabled the US to become such an attractive area for renewable energy investment in recent years.
House Republicans have already proposed an immediate termination of the Department of Energy loan guarantee program (that is essential to securing debt financing for large renewable projects) and have also signaled their intent to roll back the Environmental Protection Agency’s ability to curb emissions from fossil fuel power plants, a move that would depress energy prices and drastically curtail renewable growth.
Despite these looming clouds, the one-year extension of the section 1603 Treasury Cash Grant in December 2010 remains a major achievement of the Obama Administration. This allows the federal government to offer direct funding for 30 percent of a renewable project’s cost in lieu of investment tax credits as long as it achieves grid connectivity before the end of 2011.
This grant is an important incentive for corporates and investors in the US market. Almost a quarter of respondents said they would not invest in the US without the cash grant, while another 28 percent said it was the most important but not the only factor driving their interest in investing in the country. Paradoxically, the extension of the grant may reduce the volume of M&A activity in the US in 2011, as it will enable a number of developers to continue building new assets that should otherwise be sold.
Tom Murley said: “I expect to see some acquisitions of project development companies – there are listed companies that are in a severe state of distress. That probably won’t happen this year. The tax guarantee extension means that any acceleration in sector consolidation will happen around twelve months from now.”
In the longer term, the US government will need to provide greater visibility on policy to ensure continued healthy development of renewable energy.
Javier Sobrini warns: “Most of the existing federal support policies expire at the end of 2012. Therefore, recovery of the US wind sector will depend on the outlook for the support policies. Government statements on clean energy policy for 2013 onwards are key for the recovery of the sector in the medium and long term.”
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