Renewables deals hit £119 billion as energy crisis drives M&A

energy crisis

The value of global mergers and acquisitions in the renewable energy sector reached a record £118.7 billion in 2022 – a rise of 57 per cent on the previous year, according to research by business advisory firm Dow Schofield Watts, which cites the energy crisis as a major factor.

The figures show that the number of deals completed during the year increased by 63 per cent to 1036, as the high price of fossil fuels due to the war in Ukraine and pressure to meet net zero targets continued to drive investment and global M&A activity.

The two biggest deals during the year were both acquisitions by BP, which paid over £10 billion for a minority stake in the Asian Renewable Energy Hub in Western Australia, one of the most advanced green hydrogen projects of its type; and over £3.5 billion for the US renewable natural gas operator Archaea Energy Inc.

Other key deals included Ørsted’s sale of a 50 per cent stake in Hornsea 2, the world’s largest offshore wind farm which lies off the Yorkshire coast, to a consortium including AXA, SAS Rue La Boetie and Credit Agricole Assurances for £3 billion; and EDF Renewables’ acquisition of the Neart na Gaoithe wind farm in the Firth of Forth for £2.7 billion.

Dow Schofield Watts said the figures highlight a number of key trends. Investment in renewables is no longer being driven by subsidies and tax relief but by pressure to meet net zero and increased potential returns backed by growing consumer demand. With rising fossil fuel prices, renewables have become an increasingly attractive proposition and are popular with an ever greater number of investors.

Meanwhile investment in renewables is no longer restricted to capital intensive infrastructure. There is a whole range of new associated technologies and services – from smart meter infrastructure, smart grid technology, energy efficiency services, energy storage and EV charging – which bring together physical and digital infrastructure to create a highly synchronised market.

“Renewables investors are no longer a small, specialised pool of wind farm developers, but now include utility companies trying to acquire ‘green’ assets, large corporates, pension funds, private equity and other financial investors,” said Connor Monaghan, from Dow Schofield Watts’ corporate finance team. “The increase in the number of specialised ‘ESG’, ‘impact’ and ‘green’ funds over the past decade is noteworthy alone. All are searching for the deals that will give them the most favourable returns, if not an opportunity to get in at the start of the next big renewables breakthrough.”

According to the International Energy Agency, renewables will overtake coal as the primary energy source for global electricity generation by 2025. Electricity generated from renewables is expected to increase by almost 60 per cent to over 12,400 TWh by 2027, accounting for almost 40 per cent of all electricity generation.

Monaghan continued: “The world’s energy mix continues to turn green and additional capacity is continually being commissioned or upgraded. While assets may be initially developed by energy companies, often through mergers and acquisitions they go on to find a new ‘home’ with institutional investors or large corporates.

“Meanwhile the ‘new energy transition’ continues to drive investment in other areas beyond the generational infrastructure and will see assets, hardware, software and services combined to enable further integration, efficiency and optimisation of the fragile balance of supply and demand.”

DSW estimates that the global renewables market could almost treble in size and be worth almost £2 trillion, with almost 3000 deals annually, by 2030.

Monaghan concluded: “Looking ahead, high fossil fuel prices will make renewables even more competitive in the coming years. Together with pressure to reach net zero and growing consumer demand, this will further accelerate investment and innovation. While generational capacity will continue to expand, we expect most investment will be into ‘green tech’ which includes digital transformation and technologies such as hydrogen and carbon capture.

“Following another record year of 2022, we predict that deals activity in the renewable energy sector will continue to maintain momentum throughout 2023 and beyond.”

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