In the third quarter of 2016, investments in the Asia-Pacific Region have been driven by renewables, disruptive technologies and energy reforms.
The EY report Power transactions and trends found that renewable asset deals dominated investment activity in Oceania, with US$3.9 billion in deals comprising 68 per cent of the region’s total deal value, outstripping the 53 per cent of global deal volume contributed by renewable energy deals.
Potential energy sector reforms in Australia, South Korea and China are likely to drive further investment activity in the region as renewable energy assets continue to achieve attractive valuations.
The report also found:
- 68 per cent of total Oceania deal value in Q3 2016 comprised of deals in renewable assets
- Third quarter total global deal value was US$5.7 billion – down 39 per cent from Q2 2016
- 77 per cent of total deal volume in Asia-Pacific region was contributed by domestic players
- Digitisation and sector convergence to encourage future transaction activities
Matt Rennie, EY Global Power and Utilities Transactions Leader, said the current renewables market in Australia was strong.
“We’ve seen a number of events in Australia recently which have driven strong interest in renewables, including the issue of Australia’s first green bonds with the Victorian government’s $300 million issue and ARENA’s award of 480MW of large-scale solar projects in its latest competitive funding round.”
Regulated network assets remained the investment of choice for buyers across regional markets seeking stable long-term returns, as evidenced by the New South Wales Government’s Ausgrid transaction in October 2016.
Transmission and distribution assets accounted for more than half of total global deal value in the third quarter at US$23.6 billion. The average deal size for these assets increased by 200 per cent to US$3.9 billion in Q3.
“Regulated network and grid assets offer stable cash flows to investors looking to weather short-term uncertainty caused by ongoing commodity price volatility and recent depressed electricity demand.
“A closer look at smaller transactions in the sector reveal, however, that major utilities are looking beyond safe bets and investing in a new energy future,” Mr Rennie said.
Globally, transactions involving disruptive technologies are gaining momentum, particularly in Europe and Asia-Pacific.
The first nine months of 2016 have seen close to US$2 billion worth of disruptive deals globally involving acquisition of rooftop solar, battery storage and smart meter assets by investors.
Oil and gas companies too are increasingly diversifying into the power and utilities sector, particularly into the battery storage segment, contributing over US$1 billion of the total deal value attributable to disruptive technologies this quarter.
“Utilities are facing competition from new players in areas such as energy management and integrated IT systems. New technologies will push investors to look beyond the mainstream and recognize the potential value in unfamiliar energy products,” Mr Rennie said.
“The combination of new players and the emergence of innovative products and business models is persuading investors to explore M&A opportunities to acquire the necessary capabilities to stay competitive.
“Battery storage, big data analytics and home automation are just some of the areas where we expect utilities to explore their options and target new acquisitions.”