Second-quarter deal value declined by 32% to US$30.8 billion in the global power and utilities sector in the wake of fewer high-value conventional generation investment opportunities, according to the EY report Power transactions and trends Q2 2017.
Meanwhile, global deal volume grew from 115 in Q1 2017 to 134 in Q2 — a 17% increase.
Renewable energy deals accounted for nearly half (48%) of total deal volume in the sector. This trend was echoed most noticeably in the Asia-Pacific region where renewables made up 51% of second quarter deal volume.
The report shows how renewable energy asset valuations are increasing with demand. Renewable assets traded at high forward premiums to long-term price-to-earnings multiples across regions, with the trend most acute in Europe where the premium reached 79% in Q2 2017.
Energy reform initiatives drive activity
Energy reform initiatives also continued to drive deal activity in the second quarter, with asset privatization generating US$13.3b in deal value, which was 43% of total global deal value.
“With fewer opportunities for conventional generation investment in developed markets, we are seeing a decline in large-scale deals in the global power and utilities sector,” says Matt Rennie, EY Global Power & Utilities Transactions Leader.
“Instead, the transaction landscape is moving toward smaller deals, driven in large part by renewable energy opportunities and asset privatizations as a result of governments seeking to aid economic growth.”
Europe was the only region to record an increase in power and utilities deal value quarter-on-quarter with US$10.6b — 12% higher than Q1 2017 and a 31% increase over the same period in 2016.
Americas deal value — the highest of all regions in Q1 2017 — declined by 72% to a four-year low of US$5.9b in Q2. The US led this decline with quarterly deal value dropping 77% to US$4.4b. Sixty-percent of US deals were domestic as outbound investment slowed in the country.
Rennie says: “The decline in Americas deal value suggests that concerns over rising interest rates in the US and US federal policy changes may be taking their toll on investor confidence — but time will tell. Regardless, we expect the relentless march of renewables and energy reform initiatives to continue to spur an increase in deal volume globally.”