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Global power and utilities deal value falls

Global power and utilities deal value fell 4 per cent year-on-year to $192.3bn in 2016 compared to US$200bn in 2015, according to EY report Power transactions and trends: 2016 review and 2017 outlook. However there was good news for the European sector.

Regulated assets accounted for the greatest share of 2016 deal value (46 per cent) with $89.3bn as investors continued to seek stable returns. Interest in renewable energy assets also remained high with deal value totaling $28.4bn ” including 10 multibillion-dollar transactions. There were 46 renewable energy deals totaling $8.3bn in the Americas alone.

Last year also saw a noticeable trend ” though smaller in scale ” of some of the world’s biggest utilities investing in new energy technology, particularly in storage. Enel, Innogy and National Grid were among these companies. Deals involving new energy technology (storage, smart metering and electric vehicle charging) totaled $898m.
Matt Rennie, EY Global Power & Utilities Transactions Leader, said, “Investors face a difficult suite of choices due to ongoing low wholesale prices and an absence of new greenfield conventional generation deals in developed markets. The result in 2016 was a surge in valuations of network assets and power purchase agreement-backed renewables deals as investors sought methods of putting their money into safe, stable assets with guaranteed returns at scale.”

“A noticeable shift in the appetite for new energy technology is underway as investors embrace the need to diversify.”

Deal value in Europe’s power and utilities sector totaled $51bn in 2016 ” the highest value since 2012. Activity in the fourth quarter accounted for more than half of the year’s deal value with $27.8bn. Transmission and distribution transactions accounted for $22.7bn of deal value in the region. Excluding T&D assets, deal value fell 7 per cent from 2015 as investment in generation and renewables dropped year-on-year.

Rennie said, “The dynamics of the European electricity market are increasingly challenging. Wholesale prices have halved in the last five years, resulting in significant losses for utilities. The result has been increased investment in more profitable regulated networks and renewable businesses and a drop-off in conventional generation assets.”

The Americas power and utilities sector concluded 2016 at a six-year deal value high of more than $99bn. The majority of activity came at the start of the year, spurred by investor confidence and an abundance of capital. Deal value in the fourth quarter, however, fell to $13.9bn from $26.3bn in Q3 2016.

The US led transaction activity in the region with deal value totaling $8.2bn in Q4 2016. Rising interest rates could, however, dampen activity in 2017 while the impact of energy policy changes in the country are still not clear.

Asia-Pacific power and utilities deal value reached $23bn in Q4 2016 ” more than four times that of Q3 2016 ($5.7bn). Fifty-five percent ($12.7bn) of total deal value in the region came from T&D assets.

According to Rennie, “Asia-Pacific offers a diverse range of investment opportunities, from renewable energy to development of conventional generation assets in countries with a supply and demand imbalance and energy reform. This, coupled with a more stable political environment, will attract ongoing investment in 2017, particularly from Europe and the Americas.”