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Tailored Advice and Solutions

Renewable energy prices are at a tipping point. Are you ready to grab green opportunities?

06/04/2018

Renewable energy transition is blowing a wind of change through the power and utility sector.

The debate about the viability of renewable energy is no longer relevant, as wind and solar power are now able to compete with carbon generating power production as a cost-effective source of energy. Barriers to entry have dramatically decreased, allowing new entrants to develop significant power generation capacity, while cheaper renewable energy is also contributing to broader downward pressure on most power prices, adding to the challenges for this industry.

The debate about the future shape of the power and utility industries is just beginning. In much the same way as digitization has transformed the music industry, power and utility companies may be pushed to reinvent their business models to remain relevant.

Energy sector players, especially established companies, are going through in-depth strategic reviews in the context of the dynamics of green/renewable power. This results in significant shifts in strategy which in turn can translate into the need for acquisitions or asset divestment in order to adapt the organisation to the new strategy.

Christophe Bordes
Co-head of power, utilities and infrastructure advisory at Societe Generale CIB

What may seem as obvious and straightforward, often bears a wealth of hidden risks and the execution of a business’s repositioning strategy requires profound sector and advisory expertise. Societe Generale with its long-standing presence in this area can provide tailored advice and solutions to turn these transactions into success, leveraging its broad offering across the full spectrum of services including fundraising, offshore wind, thermosolar, photovoltaic and onshore wind power generation.

“We expect accelerated consolidation in this area, but also increased interest in customer solutions oriented services”, Christophe Bordes goes on to comment.

Beyond the core sector transformation, however, there are many developments that are less obvious, but again, offer up exciting opportunities for investing and development. For example, development in energy storage, leveraging an increasing network of electric vehicles, that can lead to a more client-oriented business model that utilities incumbents need to consider. When we get to the point at which scale brings viability, electric vehicles will offer owners more than just transport, with alternative means to taking advantage of unused power. Adoption of initiatives to provide an “internet of things” offers a strategic opportunity which industry players cannot afford to miss.

Activity in this sector is gaining pace and there are many opportunities to be explored.

According to EY1, the global market for power and utility company M&A increased by roughly 50% in each of the last two years, with the continuing increase in deal flow in 2017 presenting a stark contrast to lower growth or a fall in volume in many other sectors. The growth in deal making in Europe was lower than in other regions in 2017, at 11%, but renewable energy transactions accounted for a significant portion of this increase at 30% of the total deal value.

Furthermore, European renewable projects are seeing major direct investments from outside the region. Examples in 2017 included a £470m financing of a 25% stake in the London Array wind farm by Canada’s Caisse de dépôt et placement du Québec, and the financing of a purchase of up to 30% of the Moray Firth offshore wind project for a total value of £2bn by China Three Gorges.

Renewable energy is a key driver in some significant asset swaps within Europe that are set to realign the power and utility markets. The largest prospective deal of this type announced so far came in March 2018, when the two biggest German utilities - Eon and RWE - unveiled a complex agreement to exchange assets. The growth in renewable energy sources within Germany had contributed to a sharp fall in wholesale electricity prices and lower profits for the two utilities. So, a deal that will allow Eon to focus on running electricity grids while positioning RWE as a provider of green energy makes sense for both firms. Similar swaps in other countries are likely to follow.

Power and utility markets are typically heavily regulated, however. This does not necessarily prevent the agreement of M&A and restructuring deals, but it does place a premium on the quality of advisory services provided by banks. Expertise across national regulatory regimes, individual product markets and different financing alternatives will be crucial to companies that want to participate in the changes being driven by the growth in renewable energy use.

The revolution of the energy market is well underway and opting to sit out this shift to the energy sources of the future just isn’t an option. Ignoring the implications of renewable energy advances bears the risk of drifting into an insignificant and potential strategic dead-end – a ‘Kodak Moment’!

1 Source: http://www.ey.com/gl/en/newsroom/news-releases/news-ey-renewables-propel-power-and-utilities-m-and-a-to-eight-year-high 

Mergers & Acquisitions Trends

06/04/2018

Renewable energy transition is blowing a wind of change through the power and utility sector.

The debate about the viability of renewable energy is no longer relevant, as wind and solar power are now able to compete with carbon generating power production as a cost-effective source of energy. Barriers to entry have dramatically decreased, allowing new entrants to develop significant power generation capacity, while cheaper renewable energy is also contributing to broader downward pressure on most power prices, adding to the challenges for this industry.

The debate about the future shape of the power and utility industries is just beginning. In much the same way as digitization has transformed the music industry, power and utility companies may be pushed to reinvent their business models to remain relevant.

Energy sector players, especially established companies, are going through in-depth strategic reviews in the context of the dynamics of green/renewable power. This results in significant shifts in strategy which in turn can translate into the need for acquisitions or asset divestment in order to adapt the organisation to the new strategy.

Christophe Bordes
Co-head of power, utilities and infrastructure advisory at Societe Generale CIB

What may seem as obvious and straightforward, often bears a wealth of hidden risks and the execution of a business’s repositioning strategy requires profound sector and advisory expertise. Societe Generale with its long-standing presence in this area can provide tailored advice and solutions to turn these transactions into success, leveraging its broad offering across the full spectrum of services including fundraising, offshore wind, thermosolar, photovoltaic and onshore wind power generation.

“We expect accelerated consolidation in this area, but also increased interest in customer solutions oriented services”, Christophe Bordes goes on to comment.

Beyond the core sector transformation, however, there are many developments that are less obvious, but again, offer up exciting opportunities for investing and development. For example, development in energy storage, leveraging an increasing network of electric vehicles, that can lead to a more client-oriented business model that utilities incumbents need to consider. When we get to the point at which scale brings viability, electric vehicles will offer owners more than just transport, with alternative means to taking advantage of unused power. Adoption of initiatives to provide an “internet of things” offers a strategic opportunity which industry players cannot afford to miss.

Activity in this sector is gaining pace and there are many opportunities to be explored.

According to EY1, the global market for power and utility company M&A increased by roughly 50% in each of the last two years, with the continuing increase in deal flow in 2017 presenting a stark contrast to lower growth or a fall in volume in many other sectors. The growth in deal making in Europe was lower than in other regions in 2017, at 11%, but renewable energy transactions accounted for a significant portion of this increase at 30% of the total deal value.

Furthermore, European renewable projects are seeing major direct investments from outside the region. Examples in 2017 included a £470m financing of a 25% stake in the London Array wind farm by Canada’s Caisse de dépôt et placement du Québec, and the financing of a purchase of up to 30% of the Moray Firth offshore wind project for a total value of £2bn by China Three Gorges.

Renewable energy is a key driver in some significant asset swaps within Europe that are set to realign the power and utility markets. The largest prospective deal of this type announced so far came in March 2018, when the two biggest German utilities - Eon and RWE - unveiled a complex agreement to exchange assets. The growth in renewable energy sources within Germany had contributed to a sharp fall in wholesale electricity prices and lower profits for the two utilities. So, a deal that will allow Eon to focus on running electricity grids while positioning RWE as a provider of green energy makes sense for both firms. Similar swaps in other countries are likely to follow.

Power and utility markets are typically heavily regulated, however. This does not necessarily prevent the agreement of M&A and restructuring deals, but it does place a premium on the quality of advisory services provided by banks. Expertise across national regulatory regimes, individual product markets and different financing alternatives will be crucial to companies that want to participate in the changes being driven by the growth in renewable energy use.

The revolution of the energy market is well underway and opting to sit out this shift to the energy sources of the future just isn’t an option. Ignoring the implications of renewable energy advances bears the risk of drifting into an insignificant and potential strategic dead-end – a ‘Kodak Moment’!

1 Source: http://www.ey.com/gl/en/newsroom/news-releases/news-ey-renewables-propel-power-and-utilities-m-and-a-to-eight-year-high 

 European M&A Advisory Excellence

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Contact our experts

Christophe Bordes
Christophe Bordes Managing Director - Co-Head of Power, Utilities & Infrastructure
Louis-Aynard de Clermont Tonnerre
Louis-Aynard de Clermont Tonnerre Managing Director - Co-Head of Power, Utilities & Infrastructure
Christophe Bordes

Christophe Bordes

Managing Director - Co-Head of Power, Utilities & Infrastructure

Societe Generale Corporate & Investment Banking

View profile
Louis-Aynard de Clermont Tonnerre

Louis-Aynard de Clermont Tonnerre

Managing Director - Co-Head of Power, Utilities & Infrastructure

Societe Generale Corporate and Investment Banking

View profile

 European M&A Advisory Excellence