Analysis
US renewable energy M&A reaches new heights
Continued growth brings new investors and drives deal activity
If 2014 was the year renewables entered the mainstream, then 2015 proved that they are here to stay. Throughout 2015, the renewable sector demonstrated resilience to headwinds such as low wholesale electricity prices, tax credit uncertainty, and stock price volatility amongst YieldCos. Looking ahead, 2016 could be a year of robust growth for the sector, driven by regulatory directives and attractive economics.
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- Renewables compete
- YieldCos drive M&A
- Corporate buyers fuel demand
- Solar deal count soars
Reaching new heights with continued growth
In 2015, renewable energy assets continued to attract attention from Wall Street and other influential buyers, driving deal count up 42 percent from the prior year, to 163 deals. Total capacity acquired in the United States rose 17 percent, to nearly 19.7 gigawatts (GW). Renewable assets, which in this report refers to wind and solar resources, established a greater presence in publicly traded financial markets through YieldCo-related activity. Furthermore, large corporations, many of which were eager to lock in future electricity rates, entered into long-term contracts with solar and wind developers, growing demand and garnering interest in the sector.
Renewables compete for investor interest
The cost of wind and solar technologies continued to decline over 2015, moving renewables further into mainstream power markets. Oversupply of generation and lower natural gas prices put downward pressure on wholesale electricity prices across the nation. During 2015, there were more asset acquisitions and corporate deals (excluding utility mergers) involving wind and solar assets than natural gas and coal assets.
YieldCos drive merger and acquisition activity through third quarter
In addition to competitive pricing, renewable merger and acquisition (M&A) in 2015 was fueled by publicly traded YieldCos eager to deliver competitive dividends to shareholders. Many expected 2015 to be the “Year of the YieldCo” as these power plant holding companies drove down developers’ cost of capital and fueled growth in the sector. However, by the end of the third quarter, YieldCo valuations declined significantly due to headwinds, including volatility in broader energy markets and shareholders’ concerns over undisciplined growth. This dip in the market caused major developers to adjust their growth strategies, and in some cases, shed assets, driving M&A activity in the sector.
Corporations’ drive to reduce electricity costs and carbon footprints fuels merger and acquisition activity
While many renewable energy developers made efforts to lower their cost of capital in 2015, many large corporations made strides to lock in future electricity rates and reduce their carbon footprints through renewable procurement. Many large corporations publicized their intentions to transition to 100 percent renewable energy ahead of the 2015 United Nations conference on climate change that took place in Paris this past December. This growing interest from influential corporate buyers generally drives demand for renewables and propels M&A activity.
Solar deal count soars
Solar surpassed wind in terms of deal count in a big way in 2015. Solar accounted for 115 deals (nearly doubling deal count from 2014) compared to 48 wind transactions (a decrease of 11 percent from 2014). In terms of capacity, wind transactions continued to outpace solar in 2015, although the gap significantly narrowed compared to 2014. Despite the uncertainty of tax credit extensions, wind appeared to remain an attractive investment for buyers in 2015.
Utilities regain position as lead buyer of renewable capacity
Utilities took back their position as lead capacity buyer from IPPs in 2015, more than doubling capacity acquired from 3.3 GW in 2014 to 7.6 GW. As a result, utilities accounted for 38 percent of total capacity acquired by all buyer types. Regulatory reform in states such as California, New York, and Hawaii, as well as the progression of the federal Environmental Protection Agency’s (EPA) Clean Power Plan (CPP), encouraged many utilities to invest in renewables. These drivers, coupled with the aforementioned competitiveness of solar and wind technologies, made a strong business case for renewable adoption by utilities in 2015.
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