Power & Renewables
Andrew McCrosson, partner, UK power and utilities, PwC, said:
"In Europe, network deals have been a particular focus for institutional investors. They have continued to attract high premiums and will likely tempt existing asset owners to look closely at their options. The high premiums are in part due to the relatively stable regulatory frameworks, but also the significant capital expenditure requirements needed to replace much of the ageing infrastructure in Europe. Investors with a low cost of capital are able to finance these at levels below those allowed by regulators."
The era of cheap gas in the US has transformed valuations and M&A strategies. But the report warns that low prices cannot be taken for granted and the big M&A prizes in the US in 2013 could go to those with the foresight to correctly time the eventual upturn in gas prices.
Rob McCeney, partner, US power and utilities, PwC, said:
"Increased exports to higher priced markets, a shift to gas-fired base load generation, growing industrial consumption and expanded uses of gas for transportation fuels and derivative products will all start add to upward gas price pressure over the next few years. It's very possible that we will see moves, particularly from private equity buyers, for currently cheap assets that could gain from a longer term upward gas price trend."
The report maps a number of deal hot spots and investment opportunities around the world in the power and renewables sector for the year ahead. In particular, it highlights:Brazil
– a government move to reduce energy prices to industry and consumers has hit the market capitalisations of power companies hard. But this is unlikely to deter investor focus on the long-term growth fundamentals. Indeed, it may provide a spur to M&A by reducing target prices and also encouraging long-overdue domestic sector consolidation. Turkey
– inbound interest in Turkey will remain strong. This year has begun with news of major Middle Eastern investment in the Turkish power sector from the Abu Dhabi National Energy Company (Taqa). This follows hard on E.ON's announcement of a €1.5bn joint venture with Turkish company Enerjisa, highlighting the country's power sector growth attractiveness.Significant renewables deal flow
– there is potential for an unprecedented flow of deals for onshore wind generation assets in Europe with an estimated potential total sales value of US$4–5bn coming onto the deal table in the last few months. In the Asia Pacific region, the report highlights strong wind project deal flow in Australia in 2013, with interest high from Chinese and Japanese investors as well as Australian pension funds.Major realignment among power equipment companies
- the changing landscape in both fossil fuel generation and nuclear power is leading to major realignments among power equipment companies. Already, Hitachi and Mitsubishi Heavy Industries have announced the combination of their thermal businesses. Toshiba has announced its intention to sell part of its Westinghouse nuclear business. A coming privatisation wave
– power sector privatisations are scheduled in Australia, New Zealand, Mexico, Nigeria, Turkey and across parts of Central and Eastern Europe. While there is political uncertainty surrounding some of these, privatisations are set to contribute significantly to deal value in 2013.