Why 2018 was ‘an exceptional year in global power and utilities transactions’

A new report reveals that global power and utilities transactions hit an all-time hgh in 2018, increasing 28 per cent in overall deal value to $256.3bn with a record volume of 546 deals.

The study from analysts at EY shows that Europe was the region which contributed most to power and utilities deal value last year, with $126.5bn ” two-and-a-half times the figure of $50.3bn seen in 2017.

EY said that European Union energy market reforms, including raising 2030 renewable energy targets, mandating CO2 caps on transport and removing capacity payments for fossil fuel generation, are all set to accelerate the clean energy transition, and increased deals are coming on the back of this.

“2018 was an outstanding year for Europe M&A deals driven by portfolio optimization and interested foreign buyers,” explained Miles Huq, EY Global Power & Utilities Transactions Advisory Leader.

“Looking forward, in 2019 it is expected that utilities will focus on renewable generation as they continue to transform portfolios. Investment in EVs will ramp up, particularly as the cap on vehicle emissions is implemented across the EU and investor interest in new technology, particularly grid-connected battery storage, will start to gain momentum.”

Meanwhile, in the Asia-Pacific region, it is generation assets that drove deal value ” of the total $29.7bm, over half (15.4bn) was on generation assets.

Huq says: “We expect to see a continued focus on generation assets in coming years as the mix shifts toward renewables in Asia-Pacific. Chinese investors with significant resources who are keen to acquire strategic assets overseas will continue to drive investments within and outside of the Asia-Pacific region.”

In the Americas, renewables and energy storage remain top of the growth agenda. EY says that expected energy policy changes in Brazil, Mexico and Colombia could drive investment demand in these countries. In February last year, the US FERC introduced Order 841, which allows for the opening-up of markets to energy storage resources and is expected to drive investments in energy storage in the US.

Huq says: “Order 841 was expected to open energy storage floodgates, but while progress is being made on compliance, the pace is slow. As independent system operators evolve and structure the market to accommodate these rules, we will see growing investment in grid side battery technology which will increase system flexibility and efficiency.”

Overall, Huq said 2018 was “an exceptional year in global power and utilities transactional activity”.

“While corporates conducted 70 per cent of all transactions and accounted for 80 per cent of total deal value, there was tremendous interest from financial sponsors as well. We also saw the new energy market continue to grow in both scale and importance driven by consumer demand and regulations. As we move into 2019, we expect a continued interest in renewables, energy storage and electric vehicle infrastructure investments.”

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