Renewables, disruptive technologies and energy reforms are driving investment activity in the Asia-Pacific Region, according to the EY Power transactions and trends Q3 2016 report.
Renewable asset deals dominated investment activity in Oceania, with US$3.9 billion in deals comprising 68% of the region’s total deal value, outstripping the 53% 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.
Matt Rennie, EY Global Power & Utilities Transactions Leader, commented on the strength of the renewables market in Australia: “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 NSW government’s Ausgrid transaction in October. Transmission and distribution assets accounted for more than half of total global deal value in the third quarter at US$23.6b. The average deal size for these assets increased by 200% to US$3.9b 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,” said Mr Rennie.
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$2b 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 P&U sector, particularly into the battery storage segment, contributing over US$1b 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.
“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,” Mr Rennie said.
