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Deals market rallies as confidence returns

North America’s switch on to energy efficiency has driven its position in the global renewable M&A market in the last 12 months, and could act as a driver for the region to become the dominant renewables market within three years, according to new analysis by PwC.

PwC Renewables Deals, the annual sector analysis of M&A transactions globally, reports that globally volumes of transactions in the sector were up, but overall values were down to USD33.4bn (2009: USD48.8bn). Across the world, market interest returned, with North America bouncing back to almost match deal values in Europe in 2010, with close to US$13bn spent on 181 deals.

Ronan O’Regan (pictured), director, renewables and cleantech, PwC says: “Strong confidence has come back to the market after financing issues caused the sector real problems in 2008 and 2009. In addition, in 2010 buyers and sellers expectations are more realistic, which has supported higher deal volumes. We expect confidence levels to remain relatively strong throughout 2011, despite regulatory uncertainty in some markets.”

Globally, energy efficiency deals trebled in volume to represent over USD3bn, or 11%of all renewable transaction value, overtaking last year’s dominant market segment, Hydro power. Overall, wind and solar power continue to dominate global transactions in the sector. The US market dominated growth in the energy efficiency market in 2010 reflecting both the potential for energy savings per capita, and renewed regulatory interest, such as new US building codes aimed at delivering a 30% energy saving in new builds.

“The growth in energy efficiency deals is not surprising, particularly in North America, because when you’re trying to reduce emissions, it’s where the quick wins can be found," says O’Regan. "There’s increasing consumer awareness around managing energy usage which, when supported with appropriate regulations, is creating an attractive market for energy efficiency service providers. This, combined with government stimulus packages, should see the US become a dominant player in the renewables deal market over the next few years.”

In other significant moves, market activity by US and French nuclear power generators and engineering firms into wind and solar sectors, are part of a wider move for the nuclear sector to extend its reach in renewables, further developing their low carbon offering.

“Many of these moves by nuclear companies are driven by diversification. The reaction to the Japanese nuclear situation has been to take stock. While it won’t raise a red flag to investment in nuclear, it could in the short term spur further moves by nuclear companies into renewables.," says O’Regan.

Despite increased transaction volumes, the ‘green premium’ on renewables deals – the price investors were willing to pay for a business with products exposed to the renewables sector has narrowed, partially due to sellers’ lowering their price expectations, and partially due to greater stability in the economy.

Power utilities purchases were down to a third of previous levels, in part due to regulatory reviews in Spain, Germany, Italy and the UK, but also as their focus has switched to delivering on massive capital investment challenges.

The largest deals were dominated by the flow of renewables flotations, including the USD3.4bn spin off of Enel’s green energy arm, and Chinese transactions, raising valuable capital for reinvestment in product and market development.

O’Regan, director, renewables and cleantech, PwC says: “The recent return to USUSD100+ priced oil and the reaction to the nuclear tragedy in Japan should provide some support to valuations and act as a timely reminder to governments that a shift to a low carbon economy is not only about its environmental commitment, but also about security of supply.”

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