M&A dealmaking within the global energy sector reached new heights in 2021. A total of 973 deals were announced over the course of the year—the highest annual total on record. An annual deal value of US$218.8 billion, meanwhile, was second only to 2007’s US$247.7 billion and follows two consecutive annual increases.
With many global firms signed up to 2030 clean energy targets, companies engaged in the production and distribution of renewable energy sources have become hot properties. M&A has become a crucial tool for companies looking to gain market share in this ever-expanding industry.
Qatar decarbonizes
Among the largest renewables transactions in 2021 was US-based energy firm Avangrid’s issue of US$4 billion of stock in a private placement to new investor Qatar Investment Authority (QIA) and existing majority shareholder Iberdrola, a Spanish energy firm. Avangrid is a sustainable energy company with both natural gas and renewables assets, and is the third-largest wind operator in the US.
The deal is part of the Qatari sovereign wealth fund’s decarbonization and sustainability strategy. QIA also acquired a 50% stake in the South Africa-based portfolio of renewable energy projects of Italian renewable firms Enel Green Power earlier in the year, for an undisclosed sum.
Iberdrola has been aggressive in targeting renewable energy firms and has committed to investing €75 billion between 2020 and 2025. The company made a US$7.5 billion bid for New Mexico-based PNM Resources through Avangrid in 2020, although this transaction is facing challenges. The New Mexico Power Regulation Commission (NMPRC) rejected the deal, and the companies have appealed.
Infrastructure funds accelerate growth
The high-growth potential of the sector has drawn interest from infrastructure investment funds across the globe, as seen in Italian energy company Falck’s sale of a 60% stake in Falck Renewables to Infrastructure Investments Fund, an investment vehicle advised by JP Morgan Investment Management, for US$3.9 billion.
Falck Renewables is a renewable energy platform with an estimated 1.3GW of installed capacity across the UK, Italy, US, Spain, France, Norway and Sweden. It operates across wind, solar, waste-to-energy and biomass technologies, and has recently explored floating wind opportunities.
SPACs eye high-growth renewables assets
In February, US-listed SPAC RMG Acquisition Corp. II merged with ReNew Power, one of India’s largest renewables groups, in a deal valued at US$3.6 billion. SPACs are known for seeking out exceptionally high-growth assets, and the deal is a landmark one—the largest ever overseas listing of an Indian company via a SPAC deal.
ReNew Power, which operates wind and solar projects across 80 Indian cities, plans to use the proceeds of the deal to further grow the business, including the build-out of its contracted, utility-scale renewable power generation capacity.
India’s renewables sector is set for rapid growth in 2022, with ambitious government decarbonization targets driving investment in the sector. At the recent COP26 summit held in Glasgow, Prime Minister Narendra Modi pledged to meet 50% of the country’s energy requirements from renewable energy by 2030.
New Zealand pushes Net Zero agenda
In a sign of confidence in New Zealand’s renewables sector, Tilt Renewables was purchased by a consortium of New Zealand-based electricity generation company Mercury NZ and Australian infrastructure investment fund Powering Australian Renewables (PowaAR). The deal, valued at US$2.6 billion, gives the consortium ownership of Tilt’s 20 wind farms—either operational or under development—as the global push towards renewables gathers pace.
The acquisition will add 1,100GWh to Mercury’s annual power generation capacity, according to its chief executive Vince Hawksworth, making it one of New Zealand’s largest wind power companies.
Through reducing dependency on thermal power generation, the deal has been praised as a major step in the ongoing decarbonization of New Zealand’s energy supply.
Decarbonization drive spurs utilities shake-up
In a bid to expand into Spain’s high-growth renewables market, French utility giant Engie teamed up with insurance firm Credit Agricole Assurances to acquire Eolia Renovables. The deal, valued at US$2.3 billion, comes as the utility firm looks to achieve its target of installing 50GW of renewable capacity by 2025. The deal is an important step toward this goal, giving the joint buyers control over an estimated 899 MW of operating solar and onshore wind farms and a 1.2-GW pipeline of projects.
In a show of commitment to its renewables agenda, Engie announced that it would use the proceeds of its previous US$8 billion sale of technical services group Equans to Paris-based industrial group Bouygues, announced in November 2021, to invest in renewables.
The global utilities industry is under pressure to decarbonize by 2035 in line with the Paris Agreement on climate change. With a combined US$60 trillion in assets, investor initiatives such as Climate Action 100+ are putting acute pressure on utility firms to urgently reduce their emissions. The need for global utility players to reach their decarbonization targets will prompt a major shake-up in the sector as they look to boost their renewables capabilities.
Outlook
Renewable energy firms, particularly wind and solar, were hotly sought after in 2021 as the pressure to meet decarbonization goals ramped up across the globe. This intense focus has prompted investors to pour capital into the sector as they look to capitalize on the attractive growth prospects on offer.
While investment funds have long been active in the energy market, relatively new investment vehicles such as SPACs are also beginning to make their presence felt. Global utility firms, meanwhile, under pressure to meet their own decarbonization goals, are increasingly looking to snap up emerging renewables talent as they look to pivot away from more carbon-intensive energy sources.
With these drivers continuing to fuel activity, the stage looks set for another active year of M&A in the renewables sector.