The last 12 months have confirmed what we already knew about the global power industry – that many of its long-held tenets are being rewritten.
The balance of power (in every sense) is shifting, with Asian, African and Latin American countries embracing the technologies of the West, and in the case of China, copying them, adapting them, and then selling that expertise back to the West.
There are some colossal deals being done – and none of them are happening in Europe or the US. GE clinched one of its biggest power contracts ever in Algeria, while European engineering giants are finding big business elsewhere in North Africa, the Middle East and Latin America.
At the turn of 2013, there were two factors that many people believed would have a significant effect on the global power business: shale gas and economic growth.
Twelve months on and economic growth in Europe – or the lack of it – has certainly had a negative impact on power companies, while an awful lot of talk in the region about the benefits of drilling for shale has resulted in… no material change whatsoever.
Instead, many operators of European gas plants have been forced to shut down or mothball those plants because of unprofitability brought about by the economic malaise and an increase in renewable generation.
Is a shale-driven boom likey to happen in Europe? More than likely. Is it going to happen in 2014? Nope.
But the future for Europe is not bleak and the light at the end of the tunnel can be pinpointed to a spot of land in Somerset, England, called Hinkley Point.
It is here that EDF wants – and now seems almost certain – to build the first new nuclear plant in Britain for 20 years, kicking off a domino effect that could result in eight new reactors built with international funding and technology (see feature on p16).
The fillip in investor confidence from Hinkley is also mirrored throughout the rest of the power industry.
In its newly-published ‘Capital Confidence Barometer: Power and Utilities’, EY interviewed 203 global power and utility executives, and the results make for optimistic reading.
Matt Rennie, global transactions Power & Utilities leader at EY, said: “Half of power and utility executives say growth is their top priority, up from 40 per cent a year ago. Ninety-three per cent consider credit either stable or improving – the highest levels in two years. We expect this alignment of core fundamentals for deal-making – economic confidence, credit availability and focus on growth – to favour higher transactional activity.”
And he added: “As utilities continue to reshape their portfolio and look to newer markets and services, we expect a more robust M&A climate into the next 12 months.”
According to EY, there was a 25 per cent increase in global power and utility deal volumes in the third quarter (Q3) of this year, compared to Q2, with a 67 per cent increase in Q3 global deal value compared to Q2.
EY asked bosses to name the top five countries outside of their own domestic market in which they were most likely to invest. Brazil came out on top, followed by India, Canada, South Africa and Chile.
Other key findings of EY’s survey were: 59 per cent are confident of the credit availability in the market compared with 32 per cent a year ago; 51 per cent expect to allocate 25 per cent or more of their acquisition capital to BRIC countries in the next 12 months; and 49 per cent have greater focus on investing in emerging markets compared to a year ago.
Pip McCrostie, global vice-chair of EY’s Transaction Advisory Services, said: “Confidence in the global economy is at a two-year high. Companies have weathered a prolonged period of uncertainty during which time they strengthened their balance sheets and optimized their capital structures.
“Having warehoused cash for a number of years and with a ready access to credit, leading corporates are in a strong financial position to do deals – they now have more confidence to pull the trigger.”
Which is not to say that it’s time to break out the bunting and bid farewell to the dark days of recession, but there are, as we enter 2014, tangible reasons to be cheerful.
Dr. Heather Johnstone
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