Power & Renewables Deals - 2015 outlook and 2014 review · Power & Renewables Deals2015 outlook and 2014 review PwC, 2014 PwC,

Power & Renewables Deals 2015 outlook and 2014 review

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Mergers and acquisitions activitywithin the global power, utilitiesand renewable energy market

US$243.1bn Worldwide power and renewables deal value up 70% year on year

66% North American investorsaccount for the biggest share of activity

13% Increase in renewables deal value

We expect a lull in activity while theimplications of a changed hydrocarbonpricing environment on US gas deals and other deal areas are assessed. Butoverall, there are good reasons to believethat any dip in US deal value might betaken up, in part at least, by activityelsewhere, not least because the flow of divestment- and privatisation-drivendeals looks strong and sector M&A as a whole is becoming more globallybalanced.

Whereas the mid-noughties was an era of mega corporate expansion deals,driven principally by the ambitions ofEuropean and some US players, we seethe momentum coming mid-way through this decade as more global andmulti-faceted. Although the US took thedeal spotlight in 2014 and activity inEurope remains substantial, buy-sideparticipation in deals in these territoriesis coming from a wider spread of players.More country markets are open to M&A and we are beginning to see theemergence of new hot spots, as emergingmarket power systems reform andexpand. There are significant east-westand east-south investment flows and awider community of financial investorsas well as corporate buyers and sellers.And the market for renewables deals ismaturing and widening.

In this section, we look at the influenceson deals and specific expectations forpower and renewables deal activity.

In the later sections, we discuss currentdeal trends and the deals that have takenplace in each region.

Megatrends and energy transformation add to M&Aflow

Global megatrends such as technologicalshifts, policy moves to encourage cleanenergy and the changing world economicpower balance are becoming increasinglyreflected in power sector M&A activity.This momentum will gather pace as theeffects of energy transformation, in theform of the growth of renewables,distributed generation, local energysystems and customer energymanagement, take root. This energytransformation is driving companies toreconsider their business models andsearch out new positions in the valuechain. This could become a growing partof power sector M&A in the comingyears. In a landmark move, E.ON hasannounced its intention to focus onrenewables, distribution networks andcustomer solutions and to separatelyspin-off its power generation, globalenergy trading and exploration andproduction activities into a ‘newcompany’. This strategic repositioning byE.ON will spur deal flow in its own right,quite apart from the moves that othercompanies in Europe and elsewhere inthe world make in response to energytransformation.

As we reach the mid-decade, the upward momentum that weforecast in last year’s report did indeed translate into greaterpower and renewables sector deal value in 2014. Much of thebuoyancy in deal value came from the US gas sector with a surgein big gas pipeline deals. Five of these were for amounts ofUS$5bn plus and had fairly one-off rationales. This surge maynot be indicative of the long-term trend but we believe there isplenty of potential elsewhere in the global power M&A pipeline.

2015 outlook: plenty ofworldwide potential

Tom FlahertySenior Vice President Strategy&

Welcome to our 2015 Power andRenewables Deals outlook. It is thelatest in our annual series in whichwe look at mergers and acquisitionsactivity in the power utilities sector.

We start the report with a look atsome of the main themes that willdrive deal activity in the year ahead.In 2014 the big deal spotlight waslargely focused on the US. We expectactivity in 2015 to be more globallybalanced. There’s likely to be anelement of ‘wait and see’ as dealmakers take stock of a changedenergy pricing environment. Thereare also a number of wider economicuncertainties to give investors somepause for thought, not least the riskof deflation. But this is also likely toheighten interest in the stablecontracted or regulated returnsavailable in the sector. We see plentyof potential deal flow in the pipeline.

On the following pages we highlightthe key developments that are likelyto characterise 2015 M&A activity inthe sector worldwide. We also look at the main deal hotspots whichprovide particular deal opportunitiesas well as review who is doing whatand where. We conclude the reportwith a look at activity in the mainregions of the Americas, Asia Pacificand Europe.

Introduction

Norbert Schwieters Global Power & Utilities Leader

Rob McCeney Global Power & Utilities Transaction Services, US

Andrew McCrosson Global Power & Utilities Transaction Services, UK

2015 deal outlook 2Deal flow 5Deal makers 6Deal places 8 Contacts 15

NorthAmerica

Corporate M&A‘Yieldco’ and infrastructure investmentRenewables

Brazil

Mexico

Private sector participation

BrazilBBrrazilBBrrazilSouth

America

Inbound interest

Africa

Project investmentNascent M&A

India

Generation assetsRenewables

Europe

Government reforms and privatisationsCorporate divestmentsNetworks

Figure 1: Global deals outlook and opportunities – areas of activity

Source: PwC, Power & Renewables Deals

Australia

Network privatisation

AsiaPacific

Market reformRenewables

A changing hydrocarbon pricing environment

Power sector deal makers will be mindful ofthe oil price plunge, both in terms of itsoverall economic impact and its morespecific effect on the hydrocarbon fuel mix.Given the stance of Saudi Arabia as the keyswing producer, it is plausible to assumethat a lower oil price environment willpersist. In turn, this will exert downwardpressure on natural gas prices, particularlyin Europe where the gas- to oil-price contractlinkage remains significant. Globally thereare also supply and demand factors leadingto lower gas prices. In the US, natural gasprices have already fallen to two-year lowson the back of greater supply availability. In Asia, the gradual restarting of Japanesenuclear generation will ease gas pricingpressure in eastern markets. Falling gasprices will change fuel mix economics,causing power producers to further reviewtheir portfolio positions, boosting thecompetitiveness of gas-fired generation andpotentially spurring deal activity for gasgeneration assets. There is also likely to bean impact on deal flow in the gas pipelinesector as buyers and sellers take time toassess the lower price implications.Persistently low hydrocarbon prices couldalso challenge the economics of renewablesand nuclear generation, where these do nothave stable policy support.

Stranded assets present opportunities as well as risks

A complex interaction of trends indemand and pricing plus the effects ofpolicy-led energy transformation hasled to the sidelining of many existinggeneration plants. For example, evensome of the most modern and efficientnew gas-fired generation assets inGermany have been left stranded asrenewables and distributed generationeat away at the traditional centralisedgrid and large-scale generation model. In Australia, demand reduction incombination with current renewablespolicy is leading to reduced demand for centralised generation and themothballing of a number of powerstations. In the US, one can draw a directline from environmental policy to thestranded asset risk faced by many of the country’s coal generation plants.Closure may well be the fate of someplants but these situations could also lead to deal flow in 2015, as companiesseek to make adjustments to theirgeneration mix and as the policyenvironment evolves and changinghydrocarbon prices affect the economics of different plants.

Continued US deal flow

Outside of the gas pipeline sector, many of the same imperatives that underpinneda strong recent US deal flow are set tocontinue. We expect to see a continuedflow of generation assets coming to themarket as companies re-evaluate their fuel mix and, in the case of some, seek todivest competitive assets in order to focuson the regulated parts of their business. In turn, this is providing opportunities forindependent power producers to add totheir portfolios. Additionally, ‘yielcos’ havedemonstrated the desire to grow throughaffiliate as well as third party acquisitions.In both the regulated and unregulatedsectors, the logic of gaining synergiesthrough consolidation still has a long wayto run. We expect to see some furthercorporate mergers, although a number ofplayers will need time to pause as theynegotiate regulatory clearance for recentlarge deals and then bed them down. The evolution of rate regulation anddecoupling may also have an influence on deals. For example, we might see some utilities looking for acquisitionopportunities that will give them exposureto more progressive rate regulationregimes so they can take some of thelessons from that to influence other stateregulatory frameworks.

Power & Renewables Deals 2015 outlook and 2014 review 3

The battle for ‘behind the meter’

A key area for power companies in the coming years is competition for theterritory ‘behind the meter’: in particular,the development of strategies for powercompanies to become more relevant tocustomers as ‘energy enablers’ anddeliverers of innovative energy solutions ina world of self-generation, big data, digitaltechnology, e-mobility and smart grids. We would expect M&A to increasinglyreflect these developments as companiesseek to develop alliances, R&D,technology, analytics as well as theircustomer offer. It’s likely that the US, in particular, will see an upturn in M&Aactivity as solution providers seek toexpand their sales reach prior to theexpected surge in demand before theinvestment tax credit reduction at the endof 2016. Deal flow is likely to be focusedon smaller rather than larger deals,although we wouldn’t rule out morelandmark moves in the medium to longer term.

Long-term sights set on Africa

Chinese power companies and Japanese trading houses are already very active insub-Saharan Africa. Others are following.In 2013, for example, GDF Suez made itsfirst investment in sub-Saharan Africa after signing power purchase agreements(PPAs) for two greenfield power plants in South Africa. At this stage in itsdevelopment, Africa is a ‘hot spot’ forproject investment rather than M&A. The nature and focus of activity varies.Independent power producers (IPPs) havean important part to play across thecontinent. In South Africa, for example, a series of procurement programmes isdesigned to attract IPP investment. In thewider southern Africa region, the potentialfor the development of gas-firedgeneration and infrastructure is immense.Elsewhere, there is considerable potentialfor geo-thermal, hydro and otherrenewables, as well as thermal power.In Tanzania, unbundling is part of a newreform roadmap but much of it remains in the medium distance. In Nigeria, around of privatisation reforms has beencompleted and companies are in ‘digestand assess’ mode. Across all these areas,the secondary market for deals to selldown debt or equity remains fairlyimmature. We expect that to change over the coming years.

Appetite will remain high for regulated asset sales

The appetite from buyers for regulated assets with stable and predictable cashflows has been strong. Corporatedivestments have provided a source ofsuch opportunities but, in general, there’sbeen a shortage of sales of good assets.Where they have been available,competition has been intense. We expectthis scarcity to continue in 2015 but to behelped by government sales, bringing dealsto the table in different parts of the world.Chinese state-owned companies and non-corporate investment buyers are stronglyrepresented in the purchases of suchassets, as evidenced by State Grid ofChina’s US$2.8bn purchase of a 35% stakein a vehicle controlling Italy’s energy gridsand Australian infrastructure investmentfund manager Macquarie’s recent movesfor US utility Cleco and for E.ON’s Spanishoperations.

Australian network opportunities keenly anticipated

Anticipation will be particularly keen for any network assets that become available.Expansion through acquisition is a goal forsome network operators, while for non-corporate investors, networks continue tobe a favoured target asset in the powersector. All eyes will be on a potential flow ofprivatisation sales in Australia. Subject tothe outcome of early 2015 state elections,the privatisation of transmission anddistribution grids in Australia will attractmany interested parties, not least fromChina and south-east Asia, with interestexpected from companies such as StateGrid Corporation of China, China SouthernPower Grid and Cheung Kong InfrastructureHoldings. Singapore Power is already anowner of AusNet and it remains to be seen whether it will move to extend itsAustralian network involvement.

All eyes on Mexico and Latin American growth

New legislation opening the Mexican electric industry to private sectorparticipation in generation, transmission,distribution and power marketing activitiesbecame effective on 12 August 2014. Asthe reforms are rolled out, we anticipateconsiderable project investment fromforeign companies. Spain’s Iberdrola,Gamesa and Acciona are reported to beplanning to invest nearly US$14bn inMexico between 2015 and 2018. GDF Suezis also active in the country and US

companies are also likely to take a closeinterest in the liberalisation process.Organic investment looks most likely in theshort-term but M&A might also transpire to enable companies to establish a firmfootprint in the newly opening market. Deal activity is also heating up considerablyin South America, with continued inboundinterest, as evidenced by 2014’s US$7.3bnacquisition of Cia General de Electricidad in Chile by Spain’s Gas Natural Fenosa.

Government moves could boost deals

As well as the possible privatisations in Australia and electricity reform in Mexico,2015 looks set to provide further deal flow from government moves elsewhere. In Turkey, further power sector privatisationis expected and, in Canada, a governmentreport has put electricity market reformback on the agenda in Ontario. In the UK,one of the first issues for a post-electiongovernment will be the findings of thecompetition investigation into the energysupply market being conducted by theCompetition and Markets Authority (CMA).Vertical integration will be an issue underconsideration and it’s possible that anypolicy changes could trigger M&A moves.

‘Go abroad’ encouragement for Chinese companies

After a relatively quiet year in 2014 comparedto earlier years, we expect greater momentumin 2015. As well as the catalyst of the possibleAustralian privatisations, such momentumwill be helped by recent measures announcedby the Chinese government that relax therules on foreign investment, with theintention of encouraging ‘go global’ moves.But companies are also focused on the anti-corruption campaign being prioritised by theChinese government, which is necessitatingimportant corporate attention.

Japanese reforms spur alliances

The electricity reforms in Japan areprompting some deal activity in the form ofjoint ventures. Tepco and Chubu ElectricPower Company have already announcedtheir intention to form a joint alliance andsimilar ventures are expected between TokyoGas and Kansai Electric Power Company,and between Marubeni and Osaka Gas. In addition, we don’t rule out internationaldeals by Japanese companies in order toboost their experience and capabilities ofretail operations in competitive markets asthey prepare for market liberalisation.

4 Power & Renewables Deals 2015 outlook and 2014 review


2007 143 230 373


Domestic deals

Crossborder deals

Figure 3: Electricity and gas sector deal activity (US$bn)

US$bn20 60 100 140 180 220 260 300 340 380

49 136 1852011

35 104 1392012

38.3 82.3 1212013

2009 47 51 98

2008 74 121 195

2010 46 105 151

2014 40.7 176.7 217

Total worldwide power and renewables 2014 deal value was up70% year on year, rising from US$143.3bn to US$243.1bn(figure 2). It’s the highest deal value seen in the current decadeand any further upward movement would begin to move powerand renewables deals back towards the heady levels last seen ten years ago. 2014 was the first time that the total value ofdeals moved above the US$100–200bn range established sincethe pre-credit crisis year of 2007 (figure 3).

Deal flow: mid-decade momentum buildsTotal value, though, was up in all sub-sectors. The value of electricity deals rose6%, from US$93bn in 2013 to US$99bn in 2014, while renewables deal value wasup by 13% year on year, from US$22.8bnto US$25.8bn.

Not surprisingly, given the surge in US gas deals, the total value of domestic dealsincreased significantly, nearly doublingyear on year. But international deal values also rose, up 6.2% to US$40.7bn.This continues a three-year trend ofmodest increases since 2011, but still leaves international deal value some wayshort of the levels recorded in the yearsimmediately before that.

But there are one-off reasons for the hightotal deal value. The surge was due to anexceptional number of very big deals inthe US gas pipeline sector arising fromcorporate restructuring. The value of gasdeals rose more than fourfold, from

US$28bn in 2013 to US$118.4bn in2014, with US$100bn of this comingfrom US targets. Deal activity in termsof the number of deals remained fairlyflat in each of the sub-sectors ofelectricity, gas and renewables.

Note: Numbers are rounded to a single decimal place. Rounding accuracy means totals may not exactly match the sum.Source: PwC, Power & Renewables Deals

Total deals

Gas

of which: Electricity

Figure 2: All electricity, gas and renewables deals by value (US$bn) – 2013 and 2014

2013 2014 Change in 2014Number Value Number Value % number % value

407 US$93.0bn 423 US$99.0bn 4% 6%

146 US$27.5bn 139 US$118.4bn (5)% 330%

1,048 US$143.3bn 1,043 US$243.1bn (0)% 70%

Renewables 495 US$22.8bn 481 US$25.8bn (3)% 13%


On the face of it, diversity on the buy-side of deals has reducedsubstantially, with non-corporate buyers accounting for only 20% of deal value in 2014 compared with 31% in the previousyear (figure 4). But this was largely due to the impact on value of the large number of gas deals, most of which were corporatedeals. Outside of the gas sector, in electricity and renewables,acquisitions by buyers such as insurance funds, pension funds,sovereign wealth funds and others who are not corporatescontinue at a significant level.

Deal makers: who’s doing what

The biggest of these saw BerkshireHathaway Energy purchase Canadiantransmission operator AltaLink in a dealworth US$5.5bn, and an investor group led by British Columbia InvestmentManagement Corporation and MacquarieGroup funds acquire Louisiana-basedCleco Corporation for a total deal value ofUS$4.7bn. The latter investor group alsoincluded the insurance and investmentsubsidiary of Manulife FinancialCorporation and we continue to seeinsurance companies and pension fundstaking an active buyer interest in thesector.

These ‘non-corporate’ buyers are featuredin many big deals outside of the top five.Four of the largest twelve power deals in2014 had ‘non-corporates’ on the buy side.

Figure 4: Institutional and infrastructure bidder activity(Deal value shown in parenthesis)

Corporate 69%

Infrastructure fund 8% (US$11.6bn)

Institution 15% (US$22.1bn)

Other 7% (US$10.4bn)

Source of funds 2014

Corporate 80% (US$194.9bn)

Infrastructure fund 5% (US$12.8bn)

Institution 9% (US$21.1bn)

Other 6% (US$14.3bn)

Source of funds 2013

(US$99.3bn)

Note: Numbers are rounded to a single decimal place. Rounding accuracy means totals may not exactly match the sum.Corporate includes energy and power and utility companies; Institution includes pension funds, insurance funds, mutual funds, sovereign wealth funds and banks, etc.; Infrastructure fund includes specialised infrastructure funds and private equity funds; Other comprises sovereign state, market purchase, private investor, non-disclosed acquirers, management buy-out, etc. Source: PwC, Power & Renewables Deals

The top five deals tables for both electricity and gas show the tilt of dealactivity towards North America, with allbut two of the ten featuring buyers andsellers from within the region. Greatergeographical diversity features in the five largest renewables deals, which arespread across North America, Europe andAsia. Four US$1bn-plus deals helpedmaintain the value of renewables deals on an upward path, although the actualnumber of renewables deals was downslightly.

The upturn in the value of deals forrenewable power targets comes on top of a 25% year on year increase the previousyear, taking renewables deal value back to levels similar to the US$26bn reachedthree years earlier, in 2011. Uncertaintyabout policy support slowed or evenstalled deal flow in some countries, such as Australia and parts of Europe, but thiswas offset by increases in renewables dealvalue in other parts of Asia Pacific region,as well as in North and South America.

Who Level of activity What are their aims? Examples

Figure 8: Who’s investing and why?

Chinese state-owned enterprises

Sovereign wealth funds

Infrastructure & private equity funds

Pension & insurance direct investors

Investment holding companies andother institutional investors

Japanese trading houses

Corporates(excl. China state-owned)

Medium

Medium

Medium

High

High

Medium

Medium/High

Low

• Long-term strategic investment

• Long-term strategic investment

• Stable long-term investment• Controlling positions preferred• Yield and growth

• Stable long-term investment• Minority positions acceptable• Yield and growth

• Stable long-term investment• Yield and growth

• Financial investment and operations• Geographic diversification

• Consolidation and synergies in adjacent domestic/regional markets

• Expansion in growth markets

State Grid Corporation of China, China Southern Power Grid,China General Nuclear, Shanghai Electric Power Company

Government of Singapore Investment Corporation, Qatar Investment Authority, Abu Dhabi Investment Authority,Kuwait Investment Authority

Blackstone, GIP, IFM Investors, KKR, Macquarie Funds

Allianz Capital Partners, Borealis Infrastructure, British Columbia Investment Management Corporation,Canadian Pension Plan Investment Board, PSP

Berkshire Hathaway, Cheung Kong Infrastructure Holdings

Mitsubishi Corporation, Mitsui & Co, Marubeni Corporation

Exelon, Dynegy

Enel, GDF Suez, Gas Natural Fenosa


No. Value of Date Target name Target nation Acquirer name Acquirer nation transaction announced(US$bn)

Source for figures 5, 6, 7 and 8: PwC, Power & Renewables Deals

Figure 5: Top five – electricity deals 2014

12.1

9.2

7.3

5.5

4.7

30 April 14

23 June 14

03 Dec 14

01 May 14

20 Oct 14

Pepco Holdings Inc.

Integrys Energy Group Inc.

Compania General de Electricidad SA (96.5%)

AltaLink Holdings LP

Cleco Corporation

United States

United States

Chile

Canada

United States

Exelon Corporation

Wisconsin Energy Corporation

Gas Natural Fenosa SDG SA

Berkshire Hathaway Inc.

Macquarie Group Ltd - MGL; Manulife FinancialCorp; British Columbia Investment ManagementCorporation

United States

United States

Spain

United States

Australia

1

2

3

4

5

No. Value of Date Target name Target nation Acquirer name Acquirer nation transaction announced(US$m)

Figure 7: Top five – renewables deals 2014

2,372

1,587

1,116

1,064

930

17 Nov 14

26 Sep 14

26 Nov 14

31 Jan 14

28 Nov 14

First Wind Holdings Inc.

Himachal Baspa Power Co. Ltd.

Power Station; Kaidi Sunshine Bio-energyInvestment Co Ltd; Wuhan Kaidi Green EnergyDevelopment & Operation Co Ltd.

London Array 1 wind farm

Energisa SA

United States

India

China

United Kingdom

Brazil

SunEdison Inc; TerraForm Power Inc.

JSW Steel Ltd.

Wuhan Kaidi Electric Power Co. Ltd

Caisse de Depot et Placement du Quebec

Brookfield Renewable Energy Partners LP (40%)

United States

India

China

Canada

Canada

1

2

3

4

5

No. Value of Date Target name Target nation Acquirer name Acquirer nation transaction announced(US$bn)

Figure 6: Top five – gas deals 2014

53.4

12.0

10.8

9.9

6.0

10 Aug 14

10 Aug 14

10 Aug 14

15 June 14

15 June 14

Kinder Morgan Energy Partners LP (65.9329%)

Kinder Morgan Management LLC (87%)

El Paso Pipeline Partners LP (59%)

Access Midstream Partners LP (50%)

Access Midstream Partners LP (27.4%)Access Midstream Partners GP LLC

United States

United States

United States

United States

United States

Kinder Morgan Inc.

Kinder Morgan Inc.

Kinder Morgan Inc.

Williams Companies Inc.

Williams Companies Inc.

United States

United States

United States

United States

United States

1

2

3

4

5


Europe, followed closely by Asia Pacific, led the way in termsof the number of deals by both bidder and target in 2014, butit was North America and US deals that were firmly in frontas measured by the value of deals. North American bidderactivity as a share of all worldwide power deal value rosefrom 28% in 2013 to 66% in 2014, with the share of targetvalue coming from the region rising almost identically. NorthAmerican bidder volume rose 19%, up from 204 to 242 dealsyear on year.

Deal places: regional analysis

buyers fell 9%, purchases by Asia Pacificbuyers inched up 1.3%. Moves byEuropean utilities to gain footholds in fast-growth markets continue to be animportant theme. Gas Natural Fenosa’sUS$7.3bn purchase of Chile’s Cia Generalde Electricidad gave a big boost to SouthAmerican target deal value.

The increase in Asia Pacific activity hasmainly featured Chinese, Australian,Indian and Korean buyers. Much of this is domestic in character. Internationalexpansion continues to be on the agendafor many buyers from the region, but it’sbeen a quiet period for such moves after a busy time the year before. State GridCorporation of China’s US$2.8bn purchaseof a 35% stake in the Italian natural gasand electric power infrastructure company,CDP Reti, was the only notable such movefrom a corporate buyer in 2014. Despite this increase, deal volumes from

European and Asia Pacific bidders remainwell ahead of that in North America.Indeed, at 333 and 321 deals respectively,bidder volumes from Europe and AsiaPacific are nearly level pegging. But therewas an opposite year on year movement – while deal volume involving European

Figure 9: 2014 deal percentages by continent(2013 percentages shown in parenthesis)

Europe 33% (35%)

North America 21% (20%)

Asia Pacific 29% (28%)

South & Central America 8% (7%)

Note: Numbers are rounded to a single decimal place. Rounding accuracy means totals may not exactly match the sum.Source: PwC, Power & Renewables Deals

Russian Federation 8% (7%)

Deal number by bidder

Europe 32% (35%)





Africa 1% (1%)

Middle East 1% (0%) Middle East 1% (1%)

Africa 1% (2%)

Deal number by target


Europe 16% (32%)




Deal value by bidder


Europe 16% (28%)




Africa 0% (1%)

Middle East 1% (0%)

Africa 0% (2%)

Deal value by target

Middle East 0% (1%)


Big gas pipeline deals involvingKinder Morgan, Williams andAccess Midstream Partnersdominated the list of thebiggest US deals in 2014. These companies wereresponsible for the top five gasdeals, producing US$92.2bn of deal value. Three further US gas pipeline transactionsjust outside the top five addedUS$4.6bn more. Together,these eight US$1bn-plus gaspipeline deals accounted forUS$96.8bn, or just over three-fifths (61%) of total2014 North American powerand renewables deal value.

Americas A similar rationale lay behind theUS$9.2bn Wisconsin EnergyCorporation/Integrys Energy Groupcombination. The combined entity isprojected to have a regulated rate base of$16.8 billion in 2015, serving more than4.3 million total gas and electric customersacross Wisconsin, Illinois, Michigan andMinnesota, as well as operating nearly71,000 miles of electric distribution linesand more than 44,000 miles of gastransmission and distribution lines. A thirdbig power utility expansion move sawNextEra Energy acquire Hawaiian ElectricIndustries Inc. in a US$4.4bn deal. The offshore move builds on NextEra’srenewable energy capabilities through itsNextEra Energy Resources subsidiary andits experience serving customers in Floridathrough Florida Power & Light.

Regulated and unregulated attractions

The attraction of network assets wasreflected in the US$5.5bn purchase ofAltalink in Canada by Berkshire Hathawayfrom SNC-Lavalin Group. Altalink ownsand operates about half of Alberta’s high-voltage transmission grid and willoperate as a separate unit of BerkshireHathaway Energy. As part of the overallsale agreement, SNC-Lavalin andMidAmerican Transmission, a subsidiary of Berkshire Hathaway Energy, havecommitted to seeking out newengineering, procurement andconstruction opportunities together within North America.

Refocusing on the regulated space is alsobeing accomplished by consolidation in theunregulated part of the US power sector. In two deals worth a total of US$6.3bn,Dynegy acquired 12,500MW of coal andgas generation from Duke Energy andEnergy Capital Partners, almost doublingits existing portfolio to nearly 26,000MW.Independent power producers like Dynegyare seeking to expand merchant assetholdings to capitalise on economies ofscale in regional power generation, whileutility owners like Duke focus on morepredictable returns from regulated assets.

The Kinder Morgan and Williams gas deals centred around decisions on the best way to structure for growth. The twocompanies have both simplified theirstructures but along different lines. In alandmark move, the former has movedaway from the master limited partnership(MLP) structure and consolidated KinderMorgan Energy Partners, Kinder MorganManagement and El Paso Pipeline Partnersinto one company – Kinder Morgan Inc.Williams retained the MLP structure butmerged the Williams and Access MLPs intoone. The US gas pipeline sector has beenfast-growing since the advent of shale gas.Lower oil and gas prices may reduce theopportunities for near-term shale gasdevelopment, and related M&A, but theyare already also likely to further stimulatelonger-term market demand for gas,primarily in industrials, power generationand LNG exports.

Strong US deal flow

Gas was not the only sector seeing bigdeals flowing though. North Americanelectricity deal value surged 82%, from a relatively low US$27bn in 2013 toUS$49bn in 2014, and renewables dealsrecorded a healthy 33% increase fromUS$6.3bn to US$8.4bn. The renewablestotal was boosted by SunEdison’sUS$2.4bn deal for First Wind, which takesthe company into the US windpower sectorfor the first time, doubles its addressablemarket and sets it on course to be theworld’s largest renewable energy company.The deal allocates the First Winddevelopment projects to SunEdison, withcontracted operational projects ultimatelygoing to TerraForm Power, its 64%-ownedlisted ‘yieldco’ unit.

Growth through consolidation was a bigdriver of corporate M&A among US powerutility companies. Heading a wave ofconsolidation in 2014 was ExelonCorporation and Pepco Holdings, with aUS$12.1bn merger based on the rationaleof geographic proximity in the Mid-Atlanticand overall regulated rate base expansion.The combined electric and gas utilitybusinesses will serve approximately 10 million customers and have a rate baseof approximately US$26bn.

Refocusing on the regulated space is alsobeing accomplished by consolidation in theunregulated part of the US power sector.


Latin America spotlight on Chile

In South America, power and renewablesdeal volumes in 2014 remained fairly flatyear on year, but total deal value was upsubstantially, from US$6.8bn in 2013 toUS$15.8bn in 2014. Much of this camefrom the US$7.3bn takeover of Cia Generalde Electricidad in Chile by Spain’s GasNatural Fenosa. The deal enables GasNatural Fenosa to enter the Chilean energymarket by taking over the top electricityand gas distribution company in thecountry, providing electricity to 40% of the Chilean market.

While the Gas Natural Fenosa deal led theway in terms of size of deals, there wassizeable other 2014 deal activity in SouthAmerica. Nineteen deals had values in the US$100m–US$1bn range. The biggestwas a US$930m purchase by BrookfieldRenewable Energy Partners of a multi-technology renewable portfolio in Brazilfrom Energisa, comprising 163 MW hydro,150 MW wind and 175 MW biomass,underpinned by long-term contracts.

Another large deal involving renewableswas GDF Suez’s US$794m sale of its powergeneration assets in Panama and CostaRica to Columbia-based power generationcompany Celsia. GDF Suez is targetingregions such as South America forexpansion and views the deal as giving the company an opportunity to redeploythe proceeds in fast-growing countries.Elsewhere in South America, a US$860mtransaction saw Santiago-based Enersisbought by Enel. Enersis operates electricpower generation, transmission anddistribution assets in Argentina, Brazil,Chile, Colombia and Peru. The move ispart of a wider reorganisation of Enel andEndesa activities, to put Endesa’s LatinAmerican assets under direct Enel control.

Figure 10: North America quarterly tracking of deals – 2013 and 2014(Number of deals shown in parenthesis)

By target value (US$bn)

2013

201450.6 (61)Q2

86.6 (60)Q3

18.1 (57)Q4

Renewables Gas Electricity

Q1 2.2 (40)

13.0 (50)

7.5 (58)

11 (59)

5.9 (38)

Q4

Q3

Q2

Q1

US$bn0 4020 60 80 100


Figure 11: South & Central America quarterly tracking of deals – 2013 and 2014(Number of deals shown in parenthesis)


2013

20140.9 (25)Q2

2.1 (19)Q3

9.1 (21)Q4


Q1 3.7 (17)

Q4

Q3

Q2 2.2 (17)

2.4 (21)

1.0 (25)

1.3 (15)Q1

US$bn50 10 15 20 25



Deal volume for Asia Pacificpower and renewables targetsedged up 2.4% year on year in 2014 but the total value of deals was down 38%, from US$42.5bn in 2013 to US$26.6bn in 2014.Renewables deal value was the only sub-sector gainer,rising 22% from US$4.9bn in 2013 to US$6bn in 2014,with a series of deals in Indiaand China offsetting a hiatusin Australian renewable dealflow. There were fewer bigdeals – six US$1bn-plus dealsin 2014 compared to nine such deals in 2013.

Asia Pacific Renewables deal activity in Australia wasmuch more subdued, with just five deals in 2014, only one of which was announcedin the second half of the year. The outlookfor Australian renewables deals has beenclouded by the cessation of the carbon tax, as well as the recent review andpossible reduction in the 2020 renewableenergy targets by the Federal Government. A reduction in renewable targets is likely to adversely affect the industry, giveninvestments already made in achieving the existing targets. It is difficult to foreseeany pick-up in Australian renewables dealflow until there is a more positive andcertain policy outlook for renewable power projects.

Government sales boost deal flow

The largest Australian deal in 2014 wasAGL Energy’s US$1.5bn acquisition of the Macquarie Generation (MacGen) coal-fired assets from the New SouthWales (NSW) government. A further NSW generation sale was the US$190mpurchase of the 667MW Colongra gas-firedpower station by Snowy Hydro at the endof 2014. A month earlier, Snowy Hydrobought Lumo Energy and Direct ConnectAustralia for US$568m. Snowy Hydro isitself government-owned and has been thesubject of regular privatisation conjecture.

The Colongra sale was protracted, in partdue to reduced overall demand for powerand the mothballing of a number ofAustralian generation plants. Against thisbackground, the NSW government is yet to find a buyer for the coal-fired ValesPoint power station. TPG Capital is likelyto face similar difficulties with its possiblesale of Alinta Energy, which it acquired in2011 as part of a debt-for-equity swap.

The number of deals involving Asia Pacificbuyers remained more or less unchangedbut the value of deals involving Asia Pacific buyers dropped, down 24% fromUS$48.3bn in 2013 to US$37bn in 2014.Caution was being exercised by Chinese,Japanese and other south-east Asianbidders in their approach to internationaldeals, with State Grid Corporation ofChina’s network purchase in Italy being the only notable big corporate move for a target outside the region.

Deals worth US$4.7bn and US$3.1bninvolving Macquarie Group funds for US utility Cleco and for the Spanishoperations of German utility companyE.ON are included in the Asia Pacific buyer total, on account of the fact that the group is headquartered in Australia.But investors in the buying funds are from many territories and include manyUS and European investors. The buy-sidein these two deals also featured Canadianand Kuwaiti investment entities,highlighting the global nature of theinvestors.

Renewables boosted by India and China deals

The greater deal value attributable torenewables deals in the region stemmedfrom two US$1bn-plus domestic deals forhydropower and biomass generation assetsin India and China respectively. In thelargest of these, JSW Energy, part of theJSW Group, a steel, energy, infrastructureand cement conglomerate, acquired twohydroelectric projects in Himachal Pradeshfrom Jaiprakash Power Ventures in aUS$1.6bn deal. The second, a US$1.1bnacquisition in China by Wuhan KaidiElectric Power, included 87 biomass powerstations, five windpower projects and three hydroelectric installations.

Asia Pacific deal volume and value move inopposite directions.


2015 sights turn to network assets

The momentum of state owned assets salesin Australia is set to gather pace in 2015and 2016. The Queensland governmentplans to offer leases of 50 years or 99 yearsfor transmission company Powerlink andtwo distribution companies – Energex andErgon Energy. New South Wales plans tooffer long-term leases of 100% of theTransgrid transmission network as well ashalf stakes in the Ausgrid and EndeavourEnergy distribution networks.

Queensland has also announced itsintention to sell generation assets but the difficult environment for generationwill mean networks will be the priority.Both the NSW and Queenslandprivatisations are subject to the outcomeof general elections in each state in early2015. Elsewhere, electricity privatisationremains the subject of discussion inWestern Australia but does not have asmuch political support. As we discussedin the earlier ‘deal outlook’ section, theAustralian privatisations are likely toattract considerable interest from domestic and overseas institutionalinvestors, such as Canadian pension funds, and awaken outbound moves byChinese, Japanese and south-east Asianbidders.

Figure 12: Asia Pacific quarterly tracking of deals – 2013 and 2014(Number of deals shown in parenthesis)


2013

20149.4 (86)Q2

5.5 (82)Q3

9.1 (72)Q4


Q1 2.6 (61)

15.4 (67)

8.4 (76)

13.1 (94)

5.6 (57)

Q4

Q3

Q2

Q1

US$bn50 10 15 20 25


Australian privatisation plans are excitingstrong international interest.


Power and renewables dealactivity in Europe continued to dip in 2014. The number of deals for European targetswas down 7% year on year,while target deal value wasdown 13%, from US$45.4bn to US$39.5bn. We haveseparated out activity in the Russian Federation. Here, target deal numbers rose from 74 to 79 deals whiletarget deal value was downsubstantially to US$1.7bn in2014 from US$7.9bn in 2013, a year when the total wasboosted by US$5.1bnattributable to the MoscowPower Company privatisationand Russian gridrestructuring.

Europe

Similar deleveraging is being undertakenby E.ON. The second-largest deal in Europewas the US$3.1bn divestment of all of itsSpanish and Portuguese businesses toMacquarie European Infrastructure FundIV, with a minority stake going to WrenHouse Infrastructure, the global directinfrastructure investment vehicle of theKuwait Investment Authority. E.ON hadput its operations in Italy and Spain on the block as part of a retrenchment fromsouthern Europe.

The Italian divestment is taking timeagainst a background of reduced demandand lower prices. But it moved partiallyforward in January 2015 with theannouncement of the sale of its Italian coal and gas generation assets to Czechenergy company Energeticky a PrumyslovyHolding (EPH) for an undisclosed sum.E.ON will be hoping to follow up withfurther asset sales during 2015.

EPH had earlier bought the 2GWEggborough coal-fired power station in the UK, indicating a clear strategy ofpursuing targets to complement its existingutility business, which includes substantialcoal extraction activities. In contrast, anumber of companies are selling thermalgeneration assets as part of a strategicrepositioning of their generationportfolios. For example, UK companyCentrica has been seeking buyers for someof its gas-fired plants while Sweden’s state-owned utility Vattenfall plans to press ahead with the sale of its lignitepower plants in Germany.

The combination of falling deal value inEurope and rising deal value in most otherregions meant Europe’s share of worldwidepower and renewables target deal valuehalved, down from 32% in 2013 to 16% in 2014. In part, this is because Europeantargets have been in short supply ratherthan being less attractive. But the trendaway from Europe also reflects regulatoryuncertainty which is taking some time toresolve, as well as the constraints faced by many European power utility companies and the maturity of the marketopportunity in Europe. With the notableexception of Gas Natural Fenosa’s expansioninto the Chilean market, corporate buyeractivity has been subdued, and for thesecond year running, no deals for Europeantargets were big enough to feature in the2014 power deals top five (p. 7).

Corporate restructuring

There were ten US$1bn-plus deals forEuropean targets in 2014 compared to 13the year before. The biggest came as partof the restructuring and deleveraging beingundertaken by Enel, designed to enable itto compete in growth markets and optimiseits operations in Europe. The companyraised US$3.4bn in a public offer toinvestors in November 2014 for 19% ofEndesa. Enel is taking direct control ofEndesa’s Latin American operations andfocusing the Endesa business on Spain and Portugal. In total, during 2014, Enelrealised US$4.8bn from M&A disposals.Enel’s deleveraging is set to produce furtherdeal flow in 2015 with the planned disposalof its assets in Slovakia and Romania.

Figure 13: Europe quarterly tracking of deals – 2013 and 2014(Number of deals shown in parenthesis)


2013

201412.7 (90)Q2

7.2 (77)Q3

12.4 (87)Q4


Q1 7.2 (90)

7.8 (81)

5.3 (87)

12.2 (102)

20.0 (100)

Q4

Q3

Q2

Q1

US$bn50 10 15 20 25



Networks attract inbound investment

Italy was also the focus of the biggestinbound purchase by a buyer outside ofEurope, with State Grid Corporation ofChina’s US$2.8bn purchase of a 35% stakein Italian natural gas and electric powerinfrastructure company, CDP Reti Srl, from Cassa Depositi e Prestiti SpA. CDP Reti holds a 29.85% stake in theItalian transmission company Terna and a 30% stake in gas network companySnam. The move is the latest in a series of international purchases by State Gridand adds Italian network assets to thosealready owned in Brazil, Australia, thePhilippines, Portugal and Mozambique.

A number of opportunities for furthernetwork deals look set to arise in 2015.Following the sale of its Norwegiandistribution business during 2014, Finland’sFortum has said it expects to sell itsSwedish electricity distribution businesses.Also in Scandinavia, private equity investorEQT is planning to sell Swedish gas gridoperator Swedegas. Iberdrola is exploringthe sale of a minority stake in its Spanishdistribution business. And in Turkey, gasdistributor IGDAS is due to be privatised.

Lifting of regulatory uncertainty

Deals in Europe have to some extent beenclouded by a degree of regulatoryuncertainty but this is lifting. In Spain, anew regulatory period for electricitydistribution is commencing. The networkregulation regime for gas and electricitynetwork regulation in France is now in itssecond year of operation and German grid regulation is now settled until 2019.In the UK, the new RIIO (Revenue =Incentives + Innovation + Outputs) pricecontrol outcome for electricity distribution(RIIO-ED1) is now published and gives aneight-year regulatory settlement from April 2015. Also in the UK, the outcome of the competition investigation into theenergy supply market being conducted bythe Competition and Markets Authority(CMA) will be known in 2015.

Windpower deals

In the UK, with the project becomingoperational, windpower developer DongEnergy sold half of its 50% share in the630MW offshore London Array windfarmto pension and insurance fund manager LaCaisse de dépôt et placement du Québec(La Caisse). The US$1bn transactionmeans the joint venture ownership of the project becomes La Caisse (25%),Dong Energy (25%), E.ON (30%) andMasdar (20%). DONG Energy will remainthe service provider of operational andmaintenance services to the project.

There are also a number of otherrenewables assets likely to be subject todeals in 2015. The desire across Europe torecycle capital from operating wind andsolar portfolios to new opportunities andthe need to find co-investment for thesignificant sums involved in offshore windconstruction mean that many of the dealsare likely to see both minority and majorityequity stakes transacted rather than anoutright change in ownership. Most ofthese situations involve some form of long-term partnering and present adifferent dynamic from the more typicalbuying and selling of assets.

Government divestments

Government asset sales formed asignificant part of European power dealsflow in 2014. As well as the Italiannetwork divestment, there was theUS$2.8bn sale of the Yenikoy andKemerkoy power plants by the Turkishgovernment in an auction to IbrahimCecen Yatirim Holding, a Turkishconglomerate covering energy,infrastructure, construction and tourism; a US$2.1bn market divestment by theFrench government of a 3.18% stake inGDF Suez SA; and the Irish government’sUS$1.5bn privatisation of Bord GáisEnergy, which was bought by UKcompany Centrica together withBrookfield Renewable Energy Partnersand iCON Infrastructure Partners.

Figure 14: Russian Federation quarterly tracking of deals – 2013 and 2014(Number of deals shown in parenthesis)


2013

20140.7 (23)Q2

0.2 (28)Q3

0.0 (10)Q4


Q1 0.7 (18)

2.1 (20)

4.6 (32)

1.0 (13)

0.2 (9)

Q4

Q3

Q2

Q1

US$bn50 10 15 20 25


Restructuring and deleveragingmoves continue.

Contacts


Global contactsNorbert SchwietersGlobal Power & Utilities LeaderTelephone: +49 211 981 2153 Email: [email protected]

Global power deals

Andrew McCrossonTelephone: +44 20 7213 5334 Email: [email protected]

Rob McCeney Telephone: +1 713 356 6600 Email: [email protected]

Tom FlahertyTelephone: +1 214 746 6553Email: [email protected]

Global renewables

Brian CareyTelephone: +1 650 248 8469Email: [email protected]

Carlos Fernández LandaTelephone: +34 91 568 4839Email: [email protected]

Antonio Martinez DalmauTelephone: +34 915 685 338 Email: [email protected]

For further information

Olesya HatopGlobal Power & Utilities MarketingTelephone: +49 211 981 4602Email: [email protected]

Territory contactsAsia-Pacific

Australia & East ClusterMark CoughlinTelephone: +61 3 8603 0009Email: [email protected]

Andy WelshTelephone: +61 3 8603 2704Email: [email protected]

ChinaGavin ChuiTelephone: +86 10 6533 2188Email: [email protected]

IndiaKameswara RaoTelephone: +91 40 6624 6688Email: [email protected]

IndonesiaSacha WinzenriedTelephone: +62 21 52890968Email: [email protected]

JapanYoichi Y HazamaTelephone: +81 90 5428 7743Email: [email protected]

KoreaLee-Hoi DohTelephone: + 82 2 709 0246 Email: [email protected]

Europe

AustriaMichael SponringTelephone: +43 1 501 88 2935Email: [email protected]

BelgiumKoen HensTelephone: +32 2 710 7228Email: [email protected]

Central and eastern EuropeAdam OsztovitsTelephone: +36 14619585Email: [email protected]

DenmarkPer TimmermannTelephone: + 45 39 45 91 45Email: [email protected]

FinlandMauri HätönenTelephone: + 358 9 2280 1946Email: [email protected]

France Philippe GiraultTelephone: +33 1 5657 8897Email: [email protected]

GermanyNorbert SchwietersTelephone: +49 211 981 2153Email: [email protected]

GreeceVangellis MarkopoulosTelephone: +30 210 6874035Email: [email protected]

IrelandAnn O’ConnellTelephone: +353 1 792 8512Email: [email protected]

IsraelEitan GlazerTelephone: +972 3 7954 830Email: [email protected]

ItalyGiovanni PoggioTelephone: +39 06 570252588Email: [email protected]

NetherlandsJeroen van HoofTelephone: +31 88 792 1328Email: [email protected]

NorwayStåle JohansenTelephone: +47 9526 0476Email: [email protected]

PolandPiotr LubaTelephone: +48227464679Email: [email protected]

PortugalJoao RamosTelephone: +351 213 599 296Email: [email protected]

RussiaTatiana SirotinskayaTelephone: +7 495 967 6318Email: [email protected]

SpainManuel Martin EspadaTelephone: +34 686 491 120Email: [email protected]

SwedenAnna ElmfeldtTelephone: +46 10 2124136Email: [email protected]

SwitzerlandMarc SchmidliTelephone: +41 58 792 15 64Email: [email protected]

TurkeyMurat ColakogluTelephone: +90 212 326 64 34Email: [email protected]

United KingdomSteven JenningsTelephone: +44 20 7212 1449Email: [email protected]

Middle East and Africa

Middle EastJonty PalmerTelephone: +971 269 46 800Email: [email protected]

Anglophone & Lusophone AfricaAngeli HoekstraTelephone: +27 11 797 4162Email: [email protected]

Francophone AfricaPhilippe GiraultTelephone: +33 1 5657 8897Email: [email protected]

The Americas

Argentina/Latin AmericaJorge BacherTelephone: +54 11 5811 6952Email: [email protected]

BrazilRoberto CorreaTelephone: +55 31 3269 1525Email: [email protected]

CanadaBrian R. PothTelephone: +1 416 687 8522Email: [email protected]

United StatesMichael A. HermanTelephone: +1 312 298 4462Email: [email protected]

Jeremy R. FagoTelephone: +1 415 498 7031Email: [email protected]

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Methodology

Power & Renewables Deals includes analysis of all global power utilities, renewable energy andclean technology deal activity. Power deals includes all deals involving power generation,transmission and distribution; natural gas transmission, distribution, storage and pipelines;energy retail; and nuclear power assets. Deals involving operations upstream of these activities,including upstream gas exploration and production, are excluded. Renewable energy deals are defined as those relating to the following sectors: biofuels, biomass, geothermal, hydro,marine, solar and wind. Renewable energy deals relate to the acquisition of (i) operating- andconstruction-stage projects involved in the production of renewable energy and (ii) companiesmanufacturing equipment for the renewables sector. We define clean technology deals as thoserelating to the acquisition of companies developing energy-efficient products for renewableenergy infrastructure.

The analysis is based on published transactions from the Dealogic ‘M&A Global database’ for allelectricity, gas utility and renewables deals. Deals are included at their announcement date whenthey are partially completed (pending financial and legal closure) or completed. Deal values arethe consideration value announced or reported, including any assumption of debt and liabilities.Comparative data for prior years and quarters may differ to that appearing in previous editions of our analysis or other current year deals publications. This can arise in the case of updatedinformation or methodological refinements and consequent restatement of the input database.

Documents

Power & Renewables Deals - 2015 outlook and 2014 review · Power & Renewables Deals2015 outlook and 2014 review PwC, 2014 PwC,