ANALYSIS: US drives Americas M&A in 2012, but emerging markets are strong future bet
13 June 2013
Clean energy mergers and acquisitions (M&A) increased in the
Americas region in 2012 due to increased activity in the US, but future
growth may be more likely to come from emerging markets where wind and
solar are reaching grid parity, according to the CohnReznick Green
Energy 2013: Renewable energy M&A Activity report, produced by Clean
M&A activity in the Americas increased 9% year-on-year to $15.9
billion in 2012, despite the overall number of deals decreasing from 225
to 217. Overall growth was driven by the US, which saw the value of its
clean energy M&A transactions more than double from $4.8 billion in
2011 to $10.1 billion in 2012.
A substantial part of that US growth can be attributed to increasing
interest in pre-construction solar projects, due to the continuing
decline in component costs and, to a lesser extent, uncertainty over the
future of the solar photovoltaic (PV) investment tax credit. The
biggest transaction in the country was the $2.5 billion acquisition of
the 579 MW Antelope Valley Solar Project by MidAmerican Renewables in
Regulatory uncertainty was already the biggest driver of M&A
activity during 2012 as the production tax credit (PTC) for wind energy
neared expiration at the end of the year, causing a rush to acquire or
finance wind projects before the deadline was reached.
In the event, the US government extended the PTC for a year, an act
that 63% of survey respondents for the report who were not targeting
US-based wind investments agreed or strongly agreed would renew their
interest in the US market, with only 5% strongly disagreeing.
Long term US growth could be limited due to a scale-back of subsidy
schemes. In addition to the PTC for wind, which is due to expire again
at the end of 2013, the 1705 loan guarantee and 1603 grant programmes
have already ceased.
State-level Renewable Portfolio Standards requiring utilities to
source set proportions of their energy from renewables have also
recently come under attack in several states, though no decisive blow
has yet been struck and states such as Colorado have in fact increased
the size of the RPS this year.
In total, the US was responsible for almost two-thirds of Americas
M&A activity in 2012, ahead of Canada ($2.9 billion), Brazil ($2.1
billion) and Chile ($450 million).
Brazil and Chile are at the head of several emerging markets in the
Americas that look set to be far more attractive for M&A in the
future. This is because the decline in equipment and construction costs,
has brought renewable energy to grid parity in several emerging nations
in the region, meaning it can compete without subsidies.
Wind energy is already sufficiently competitive in Brazil that it is
beginning to surpass combined cycle gas turbine (CCGT) and even hydro
power in popularity, while Chilean wind power is now cheap enough that
projects, such as Mainstream Renewable Power's 33 MW Negrete Cuel wind
farm, can be built without a power purchase agreement in place, as the
electricity can be sold directly on the spot market. In addition,
Chile's mining industry is increasingly turning to renewable energy
projects for its own power needs.
"In Brazil, they are separating out wind into its own auction
distinct from CCGT and hydro," Scott Mackin, Managing Partner of Denham
Capital, told Clean Energy Pipeline. "In the past people would have said
this is being done as wind needs higher prices to sustain itself but,
actually, in this case wind has been winning more MWs in these auctions
so consistently that the market regulators have to protect CCGT and
hydro from wind to ensure diversity of supply."
"Wind power is already operating at grid parity in Chile," added
Fintan Whelan, Corporate Finance Director for Mainstream Renewable
Power. "Diesel generation is very fuel-expensive and there are the
transport logistics of taking it from the coast to where new mines may
be located. Wind and solar farms located right next to a mine can
displace a lot of uncertainty around logistics and fuel price."
Chile was responsible for more renewable energy M&A activity in
2012 than the next seven countries in the Americas combined, but grid
parity is also being reached in other emerging markets such as Mexico,
Ecuador and several Caribbean nations. In total, 70% of the Report's
survey respondents agreed or strongly agreed that renewable energy
projects in emerging markets now represent attractive investment
opportunities even without subsidies.
Despite that, some emerging markets are introducing subsidy schemes,
including Mexico, which launched a legislative system in 2012 to help
cut carbon emissions 50% by 2050. Several investors, developers and
suppliers are already investing more heavily in the region, and subsidy
systems, combined with lower costs, look likely to enhance deployment
and M&A activity in the Americas.
Contact the reporter about this article: Rob Lavine at email@example.com.
- Photo courtesy of US Department of Energy
Download 'Green Energy 2013: Renewable energy M&A activity in the Americas' HERE