Powering ahead 2010

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Powering ahead 2010

  1. 1. Powering ahead: 2010An outlook for renewable energy M&AA DV I S O RY
  2. 2. About the researchThis report provides an insight into the global M&A activity in renewable energy. The findingsare based on a survey of over 250 senior executives active in the renewable energy industryworldwide. The survey and report were written in collaboration with VB/Research, a specialistrenewable energy research and data provider. Transaction data and statistics included in thereport have been extracted directly from VB/Research’s databases.Geographical breakdown of respondents The survey was conducted between January and March 2010 and was completed 5% 5% by five different types of respondents – corporates, financial investors, debt 9% providers, government bodies and service providers. Among the respondents, 75 percent were top-level executives such as chairpersons, senior executives 18% 34% or divisional heads. Surveyed respondents were split among Western Europe (33 percent), North America (29 percent) and Asia-Pacific (18 percent), with Eastern Europe, Middle East and Africa, and South America accounting for the remaining. 29% To supplement the survey results, interviews were also conducted with the following senior executives: Western Europe North America Areva SA Rabobank International Asia-Pacific Anil Srivastava, Senior Executive Marcel Gerritsen, Global Head Eastern Europe Vice President and Chief Executive of Renewable Energy & Middle East and Africa Officer, Areva Renewables Infrastructure Finance South America A leading company in the nuclear A provider of diverse financing solutions power industry, which is also active in for renewable energy projects in Europe, offshore wind energy, bio-energy, solar Asia and the Americas power, and hydrogen carrier and energyBreakdown by type of respondent storage solutions United Nations Framework Convention on Climate Centrosolar Group AG Change (UNFCCC) 6% Thomas Kneip, Vice President, Yvo de Boer, Executive Secretary 7% Business Development Head of the UNFCCC since 2006 and A vertically integrated solar photovoltaic Chairman of the Copenhagen Climate (PV) company based in Germany Change Conference in December 2009; 16% 38% Yvo de Boer will join KPMG on July 1, Covanta Energy Corporation 2010 as Global Advisor on Climate and Allard Nooy, President Asia Pacific Sustainable Development. 33% A global owner and operator of energy-from-waste and power Definition: generation projects Mergers & Acquisitions (“M&A”) All corporate M&A transactions Corporates: Companies operating within E.ON Climate and (mergers, acquisitions and minority the energy sector, or owning a company (e.g., energy utility firm, oil & gas major, Renewables GmbH investments) as well as private equity energy producer, energy distributor) Cord Landsmann, transactions such as buyouts, public-to- Service providers (e.g., investment bank, Chief Financial Officer private deals and secondary buyouts. financial advisory firm, law firm) The renewable energy and carbon Investors: Companies investing in the energy sourcing division of E.ON Group, For the purpose of the report, M&A sector (e.g., private equity fund, infrastructure one of the world’s largest owners transactions until April 14, 2010 have fund, hedge fund, asset manager) of renewable power projects been tracked. Government bodies (e.g., internal/ external investment agency, cluster, Hudson Clean Energy Partners trade organisation) John Cavalier, Managing Partner Debt providers: Companies providing debt A global private equity firm, focused on finance to companies investing or operating in the energy sector (e.g., overdraft/term renewable power, alternative fuels, loans, project finance, revolving credit) energy efficiency and storage © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  3. 3. ContentsForeword 1Executive summary 3Transaction activity picked up the pace in late 2009 5Government incentives are fuelling M&A 9M&A rises to the top of the agenda 17How long will it remain a buyers’ market? 21Financing conditions remain demanding 27Cover image: Courtesy of BARD Group Description: Erection of the BARD nearshore wind turbine © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  4. 4. 1 Powering Ahead: 2010 – An outlook for renewable energy M&AForewordCould anyone have envisaged just how muchthe market would change since our first reporton M&A activity in the renewable energysector in 2008? Two years ago, the temperature was at boiling point with significant premiums paid on deals, as major developers sought to establish a position in the renewables sector. Investors were prepared to pay substantial sums for portfolios that contained long development pipelines but few operating assets. Issues around the availability of turbines and silicon, combined with grid connection and planning delays in some markets, were converging to create an investment bubble. When the financial crisis took hold, lenders stepped back from the risky end of the market. With financing drying up for early-stage development assets and lendersAndy Cox working hard to reduce their exposure to the sector, many projects are beingPartner, KPMG in the UK stalled or even shelved in the face of the capital drought. Deal multiples fell asGlobal Head of Energy and acquirers were no longer willing to pay for development pipelines that only offeredUtilities for Transaction Services the potential for hard returns at some point in the distant future. 2009 saw governments around the world promise major capital injections and a wealth of incentives. As a result, over the period of this year’s survey, we have started to see the impact of these stimulus measures on M&A activity. On a positive note, we have seen a dramatic increase of 145 percent in global deal volume in Q1 2010 compared with Q1 2009; despite over half of the respondents finding financing harder. In part, this may suggest that investors are being forced to increase the proportion of equity in a deal to fund a successful transaction. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  5. 5. Powering Ahead: 2010 – An outlook for renewable energy M&A 2This is surprising, as the macro-economic certainly attractive factors in its favour firepower of sovereign wealth fundsview seems to suggest that lending is – not least its potential to generate could also hold the key to financing thebecoming easier. While recent headlines greater returns than wind. Although sector but perhaps we might also seesuggest that there are positive signs there is no doubt solar and wind will new interest in renewables from majorthat the financial services industry is continue to drive deal activity, our corporates, and not just from therecovering, this response shows that research suggests that from a global utilities sector. Could the May 2010it remains fragile. We believe capital perspective, biomass too, will play a announced participation of internetfunding will be the single biggest significant role in investment growth. giant Google in onshore wind in thechallenge for the next decade, with US be the beginning of a new trend? Of course, the growth in renewablesrenewable energy projects competing Whether it is or not, renewable energy will not happen, if there is no moneyfor capital alongside a whole range of remains a rapidly changing sector and to support its development. With fierceother important infrastructure projects, I believe the results of our survey competition to gain access to bankincluding energy, transport and will continue to provide an interesting capital and some government programshealthcare projects. perspective to those who participate tailing off, everyone is asking the same and invest in it.Perhaps the most surprising finding question – where will the capital comeis that survey respondents are now from? Recent conversations I’ve hadseeing biomass as a serious contender with Asian players in countries such asfor investment alongside solar and wind. Japan and Korea suggest that they mayWhile biomass lags behind wind and be ready to invest heavily around thesolar in terms of maturity, there are world in renewables. The potential © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  6. 6. 3 Powering Ahead: 2010 – An outlook for renewable energy M&AExecutive SummaryNot sprinting but definitely joggingThe new decade has started on a more positive note, whencompared to how the last one ended. In the first few monthsof 2010, the number of completed deals in the renewableenergy sector more than doubled in comparison to thecorresponding period last year.Surveyed respondents agree that Thank government incentives global energy related CO2 emissions. ”M&A activity is picking up, with over The disappointing outcome of the Over half of the surveyed respondents90 percent intending to undertake a Copenhagen Climate Change Conference believe that these initiatives will act astransaction in the next 18 months. in December 2009 (COP15) is not the principal driver for M&A activity in expected to have any impact on global the next 18 months. North America,In terms of completed M&A deals the M&A activity. As Yvo de Boer, Executive particularly the US, tops the list ofsolar sub-sector continues to lead in Secretary of the United Nations targeted countries for M&A transactions,2010, with wind following closely Framework Convention on Climate supported by the American Recoverybehind. Last year, the solar and wind Change, commented “Despite the and Reinvestment Act (ARRA).sub-sectors together accounted for absence of a legally binding agreement, China and India have moved muchapproximately 50 percent of the 300 countries will go ahead and implement higher up the target list when comparedcompleted M&A deals. plans of their own. This view is supported ” with last year’s survey, bolstered byEquity capital market activity has also by an overwhelming 88 percent of the stronger incentive programs, along withstarted to recover, with optimism most surveyed respondents who believe that a reduction in stimulus by some majorevident in China (since it lifted its IPO the result of the summit will not affect European countries such as Germanyfreeze in June 2009) and North America M&A activity worldwide. and Spain.(where the surveyed respondents are Many countries have now approved and Other factors that continue to fuel M&Ashowing the greatest confidence in are distributing significant incentives activity in the sector include energysecuring public equity funding). and stimuli in the form of direct grants, security concerns, fluctuating oil prices, feed-in-tariffs (FiTs) and/or loan and the availability of renewable guarantees. According to Yvo De Boer, ”feedstock”. In the background, “Since the summit, 43 industrialized government-financed clusters are countries as well as 41 developing nurturing the development of early nations have submitted national targets stage technology companies and and action plans to reduce carbon innovators. emissions on a national level. These countries represent 80 percent of the © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  7. 7. Powering Ahead: 2010 – An outlook for renewable energy M&A “The companies that are able to partner or be acquired will stay, the others will struggle to survive.” Anil Srivastava, Areva SAThere’s still a valuation “gap” Biomass shining through Yet despite these challenges,There remains consistent with last year Looking at which renewable sub sectors it is interesting to see that thea significant gap between the valuation are most attractive, the survey has companies with the money toexpectations of sellers and acquirers. found a change in appetite from last support their convictions are year’s findings with biomass (37 percent) driving biomass forward alongsideLooking forward many industry players increasing to the same level of appeal their wind and solar portfolios,and investors expect valuations and as solar (36 percent) and onshore wind which are arguably easier to deliverdeal sizes to increase this year, although (35 percent) for corporates and investors. in the short to medium term.pricing is expected to remain problematic.Transactions are currently closing at While wind is still recording significantaround 9x historic EBITDA, equating deal activity, our research has shownto an average discount of about that dealmakers, particularly large30 percent to 2006 - 2008 valuation companies such as the utilities, aremultiples. However, over two-thirds looking for the next global trend andof the surveyed corporates do not biomass looks like it is positioned to beexpect to pay more than 5x EBITDA one of the most active sub-sectors forfor renewable energy companies MA in the next 18 months.or projects. Biomass plants are capable of yieldingFunding demand outstrips supply higher returns than other renewableAlthough banks are keen on the energy sources and operate morerenewable energy sector, securing effectively as a base load powerfinance has become harder over the source in comparison to intermittentpast year for over 50 percent of the technologies such as wind and solar.surveyed respondents. Two of the main However, the biomass sub-sector stillreasons are: a substantial increase in faces difficult challenges such asmargins (approximately three times the securing finance for construction,average margin offered three years ago) identifying long term sources of fuel,and a debt market that is growing less and the visibility of fuel prices.rapidly than the sector’s ever growingfinancing requirements.“Despite the absence of a legally binding agreement, countries will go ahead and implement plans of their own. ” Yvo de Boer, United Nations Framework Convention on Climate Change (UNFCCC) © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  8. 8. 5 Powering Ahead: 2010 – An outlook for renewable energy MAThe second half of 2008 and the first few monthsof 2009 were challenging for many players in therenewable energy sector as uncertainty in thefinancial markets and the slow pace of economicrecovery made raising capital difficult.Transaction activity picked upthe pace in late 2009 However, as 2009 wore on, activity in the MA arena and public markets picked up pace. On the MA front, more and more companies with strong balance sheets tried to capitalize on attractive valuations and smaller companies’ desperate need for capital. The year finished with over 300 acquisitions worldwide, totaling over US$53bn in value. Over the first three months of 2010, MA deal values declined slightly from late 2009 levels; however, deal volume remained strong. As shown in Figure 1, the number of deals completed in the first quarter of 2010 (150) is more than double that in the corresponding period in 2009 (61). In terms of regions, North America maintained its allure – 46 percent of the announced MA deals (69) involved target companies based in North America in Q1 2010, compared to 41 percent for the whole of 2009 (46). Barring any new significant negative development in the financial markets, all signs point to 2010 being a stronger year for MA activity. Solar remains the most popular sub-sector and leads in terms of the number of deals in 2010, with 31 deals recorded up to mid-April. However, in terms of aggregated transaction value, the wind sub-sector was actually larger during the same period – US$1.8bn compared to US$1.5bn in the solar sub-sector. This is largely due to two big Iberian deals, with Enel and Iberdrola recently announcing investments of €860m and €320m respectively, in wind assets in Spain. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  9. 9. Powering Ahead: 2010 – An outlook for renewable energy MA Figure 1: Global MA activity 20 160 18 140 16 120 14 12 100 $ billion 10 80 8 60 6 40 4 2 20 0 0 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 Source: VB/Research Investment (in $ billion) Number of TransactionsIn terms of valuation, average multiples equities remains shaky in the American the 70-MW Criterion farm in Marylandhave fallen by around 30 percent between and European markets. More positively, – and Duke Energy’s entry into the solar2009 and 2010. Between 2006 and 2008, several IPOs in Asia made big headlines market with its January 2010 purchasesome highly priced deals dragged the toward the end of 2009, with the Chinese of the 16-MW Blue Wing project in Texas.average up, close to 3x historic revenue government ending a nine-month IPO These transactions indicate that USand 13x historic EBITDA. Transactions freeze on the Shanghai Exchange. federal and state policies are finallyare now priced closer to 2x historic convincing some of the more traditional While most attention in the renewablerevenue and 9x historic EBITDA as investors and energy firms to turn to power sector has been focused on biginvestors continue to show greater cleaner sources of power generation European utilities such as Enel andcaution about overpaying. to grow their businesses. Iberdrola, it is important to mention thatIn public markets, green indices were the US, whose wind power capacity One final trend worth noting in 2009hit hard during 2008 and the first quarter soared by 39 percent in 2009, also was the heightened MA activityof 2009, with some of them losing as witnessed healthy MA activity among of large industrial corporates.much as 75 percent of their pre-crisis its utilities. Examples include Kansas- Companies including Robert Boschvalue. While there was some recovery based Westar Energy’s acquisition of GmbH, Areva SA, Bayer CropScience AG,over the last nine months of 2009, the the development rights to a 500-MW Daewoo International, General Electric,indices are still faring worse than the wind project from Infinity Wind Saint-Gobain SA, Siemens Energy AGgeneral market indicators. The first Power in January 2010, utility giant and Royal Philips Electronics acquiredthree months of 2010 have not seen any Constellation Energy’s purchase of its renewable energy companiesimprovement as investor confidence in first wind asset in November 2009 – during 2009. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  10. 10. 7 Powering Ahead: 2010 – An outlook for renewable energy MAFocus on... Solar This is due to a combination of over- following the decision to cut solar MA in the solar sector is being driven capacity among panel manufacturers subsidies in Spain and Germany. in three ways – market consolidation, and a sharp plunge in global silicon In 2010, notable solar deals include to increase the dominance of existing prices, both of which have led to an Solutia’s acquisition of Etimex, which players through MAs; technology- unsustainable situation for many produces plastics for solar panels, motivated acquisitions; and smaller factory owners. One large and French nuclear operator Areva’s downstream acquisitions, to improve player that has capitalized is GCL-Poly acquisition of Ausra, an Australian access to the end-user. The solar Energy Holdings, which has transacted developer that moved to California in market stands out in this respect with over US$5bn in completed or 2008 to focus on large, utility-scale 24 percent of the total MA deals in announced acquisitions in 2009 and solar thermal projects. The latter is of 2009 covering technology companies, early 2010. Production cost concerns particular interest, as an example of a manufacturers, service providers and will also push developers toward mature player in the power industry installers. China, which supplies regions providing low-cost seeking to expand in the renewable about half the world’s solar modules, manufacturing solutions, especially energy sector. has seen a big share of the action. Wind generation In the UK, the British Government’s projected capacity of 206-MW) along In the wind sector, large project buyers 2009 Budget announced a series of with a refinancing of the project. At the in 2009 and 2010 included Italy’s Enel, support measures aimed at stimulating end of 2009, DONG Energy and Siemens Spain’s Iberdrola, UK’s Renewable renewable energy projects including Project Ventures acquired a 50 percent Energy Systems, Ireland’s Bord Gais £525m for offshore wind farms through stake in Centrica’s 270-MW Lincs project. Eireann and North America’s NextEra the Renewable Obligation scheme. DONG Energy also announced the sale Energy Resources. Gamesa was also Since this announcement a series of a minority stake in its 367-MW active, announcing its intention to of transactions have taken place as Walney offshore wind farm project to acquire a minority stake of German developers have sought to reduce their Scottish Southern Energy. The UK offshore wind developer BARD in risk and attract third party capital to remains a highly attractive market February 2010. The German company their offshore wind commitments. boasting potentially the largest wind recently launched its tailor-made These transactions included investment resources in Europe and a well-defined installation vessel and is planning to use company TCW’s acquisition in October subsidy regime. it for its own 5-MW turbines at a 400- 2009 of a 50 percent stake in Centrica’s MW wind farm in the North Sea in 2010. Boreas portfolio (total installed and Biofuel Northeast Biofuels, acquired by the capacity to produce about 2 billion Uncertainty in the US over the Sunoco, and Panda Ethanol’s partially liters of ethanol per annum. The joint continuation of its tax credits regime, complete plant by Societe Generale. venture should enable these two which is expected to expire at the end In March 2010, the Renewable Fuels companies to dominate the domestic of 2010 (and in 2012 for cellulosic Reinvestment Act, seeking to extend Brazilian market and become major biofuels), has also driven market the US$0.45 per gallon blender credit, global players within the sub-sector. consolidation in the biofuel sub-sector. was presented to the house members Nonetheless, the success of marketing VeraSun, which at one point claimed to but has not yet been ratified. Brazilian ethanol globally will depend be the biggest ethanol producer in the on several factors beyond the In Brazil, the most significant US, was forced to seek bankruptcy companies’ control, with the prevailing announcement in January 2010 was protection after a rapid decline in corn price of oil and US import tariff Shell and Cosan’s US$12bn joint prices, becoming the most prominent restrictions being the most important. venture (JV). Shell is paying US$1.625bn casualty in 2009. Valero Energy Other recent entrants in the Brazilian over the next two years for its share in emerged as the biggest winner from ethanol market include India’s Shree the venture, and is also contributing its VeraSun’s liquidation, acquiring seven Renuka Sugars and North America’s Brazilian downstream assets and its different ethanol plants for US$477m Amyris Biotechnologies. Brazil’s cheap interests in Iogen Energy and Codexis, (US$0.60 per gallon of operating sugar cane and its well-developed which are biotech firms that specialize capacity), reported to represent biofuel infrastructure have played a in advanced ethanol production. Cosan only 30 percent of the assets’ large role in attracting big names to is contributing both its downstream replacement value. Other bankruptcies its biofuel market. and production assets, which include hastened fire sales in 2009, including © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  11. 11. Powering Ahead: 2010 – An outlook for renewable energy MA The table below lists some of the largest transactions tracked during 2009 and the first months of 2010. Only transactions forwhich a deal value has been announced have been listed in the table.Notable MA Transactions – 2010 Year To Date Target Target Acquirer Acquirer Sector Date Deal value Valuation metrics country country (US$m) Cosan Ltd. Brazil Royal Dutch The Biofuels Jan 2010 1,625 N/A1 Shell plc Netherlands Gamesa’s El Andevalo wind Spain Iberdrola SA Spain Wind Feb 2010 440 1,800 (US$ per kW in operation) farm (244-MW) Equipav S.A. Açúcar e Álcool Brazil Shree Renuka India Biofuels Feb 2010 324 N/A1 Sugars Ltd. Endesa Renovables Spain Enel Spa Italy Wind Mar 2010 1,184 1,350 (US$ per kW in operation)2 (1,460-MW) (mostly) Etimex Solar GmbH Germany Solutia Inc. USA Solar Mar 2010 326 10.1x EBITDANotable MA Transactions – 2009 Target Target Acquirer Acquirer Sector Date Deal value Valuation metrics country country (US$m) Endesa renewable portfolio Spain Enel Spa Italy Wind, Feb 2009 3,558 1,690 (US$ per kW in operation)2 (2,105-MW) Hydro Greatest Joy International China GCL-Poly Energy China Solar Jun 2009 912 N/A1 Ltd. Holdings Limited Waneta Dam (490-MW) Canada BC Hydro Canada Hydro Jun 2009 729 4,460 (US$ per kW in operation)3 Canadian Hydro Developers, Canada Transalta Corp. Canada Hydro, Jul 2009 1,470 2,250 (US$ per kW in operation)3 Inc. (700-MW of operational Wind, assets) Biomass Turkish wind farm portfolio Turkey Renewable Energy UK Wind Oct 2009 1,107 2,200 (US$ per kW in late (500-MW) Systems Ltd. development) Elkem AS hydro plants Norway Norsk Norway Hydro Oct 2009 1,033 2,995 (US$ per kW in operation) (350-MW) Vannkraftproduksjon AS Apollo Precision Ltd. China RBI Holdings Ltd. China Solar Oct 2009 539 N/A1 SWS Natural Resources Ireland Bord Gais Eireann Ireland Wind Dec 2009 755 14.3x EBITDA Moema Group Brazil Bunge Ltd. USA Biofuels Dec 2009 896 6.90 (US$ per gallon of annual (5 Sugar mills, 130-MGY) operating capacity)Source: VB/Research 1 The relevant information was not available at the time the deal was announced. 2 Enel purchased a 60 percent stake. The valuation multiple has been calculated on the basis of an implied 100 percent acquisition. 3 Transalta ultimately ended up purchasing a 93.5 percent stake in November 2009. The valuation multiple has been calculated on the basis of an implied 100 percent acquisition. Biomass and Clean Coal Rounding up recent power generation deals, Greenspark Power Holdings, Wind technology a subsidiary of the Australian private This sub-sector has been impacted Hydro equity firm Pacific Equity Partners, by weakening demand in the wind The more mature forms of renewable acquired a 79.6 percent share of turbine market. The deep backlogs in generation, such as wind and hydro, the power plant operator Energy turbine orders that were commonplace have also witnessed an increase in Developments Ltd., which generates in early 2009 have been replaced by MA activity in the second half of 600-MW of worldwide capacity from rapidly shrinking orders as developers 2009 and early 2010. On the hydro waste coal mine gas, compressed struggled to obtain financing for their front, several large transactions were natural gas and landfill gas. In the US, projects. Industry players reacted announced in Canada by companies Arch Coal obtained a 35 percent equity swiftly to this trend. For example, such as BC Hydro in June 2009 interest in the 600-MW Trailblazer Iberdrola divested 10 percent of its (CAD$825m) and Transalta Corp. in Energy Center project from Tenaska. holding in Gamesa for over €391.7m July 2009 (CAD$754m). In addition, Trailblazer will be one of the world’s in a private placement in June 2009. the Canadian Brookfield Renewable cleanest coal plants, capturing 85 – 90 Later in the year, AE Rotor received Power Fund, formerly known as percent of the carbon dioxide produced £224m for its 35 percent share in Great Lakes Hydro Income Fund, in combustion and then piping the gas Hansen Transmissions, while United acquired 15 hydroelectric plants from for use in enhanced oil recovery at a Technologies acquired a 49.5 percent Brookfield Renewable Power Inc. in nearby oil field. stake in Clipper Windpower for £166m. July 2009 for CAD$945m. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  12. 12. 9 Powering Ahead: 2010 – An outlook for renewable energy MAAlthough a global agreement on emission targetswas not achieved at COP15 in December 2009,the lack of a binding agreement is unlikely todiscourage corporates and investors from investingfurther in the renewable energy sector.Government incentives arefuelling MA Among the surveyed respondents, an overwhelming 88 percent believe that the result of the summit will not directly affect MA activity worldwide. Anil Srivastava comments, “I believe [the lack of outcome of COP15] will mainly impact the number of projects in emerging countries, which will decrease, and affect the broader development of renewable energy generation projects worldwide. ” This is despite an agreement during the summit to provide US$30bn in short-term financing to support developing countries. “The key question, says Yvo de Boer “ ” is how will these funds be delivered and how will the money be put back into greening the economy? A clear financial architecture has to be defined. In addition the role of financial institutions such as The World Bank has to be clarified. ” Regional climate change concerns, energy security issues and economic rationale are all prompting developed countries to provide the renewable energy sector with a range of increasingly differentiated incentives and grants. According to Yvo de Boer, “Regions and countries have to do what they can on a regional and country basis. A global agreement is the last resort, i.e. when it cannot be avoided. The slimmer the international agreement, the better!” © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  13. 13. Powering Ahead: 2010 – An outlook for renewable energy MA 10 “Regions and countries have to do what they can on a regional and country basis. A global agreement is the last resort, i.e. when it cannot be avoided. The slimmer the international agreement, the better!” Yvo de Boer, United Nations Framework Convention on Climate Change (UNFCCC)Significantly over half of the surveyed These government initiatives will also as indicated by 54 percent of thoserespondents predict that these regional drive cross-border MA activity. surveyed (see Figure 2). Since theregulations and tariffs will actually Countries with attractive incentives beginning of 2010, 46 percent of theaccelerate MA activity during the next will enhance their appeal to foreign announced MA deals (69) have18 months. At the sub-sector level, corporates and investors, who are involved companies based in Norththese incentives will also have a increasingly looking for scale and a America, up from 41 percent (46 deals)profound impact on MA. As Thomas global footprint. Surveyed respondents in 2009.Kneip, Vice President of Business strongly agree – over 65 percent of Compared with last year’s survey,Development at Centrosolar Group, the corporates and investors based India (36 percent) and China (34 percent)comments, “In the photovoltaic in North America or Europe intend to are increasingly being targeted byindustry, MA activity is largely driven invest or acquire a renewable energy companies considering acquisitionsby valuation and country specific company or project outside their own (2009: India – 23 percent and China –regulations. For example, the US, India region in the next 18 months. 22 percent).and China have developed important In line with last year’s survey, Northstimuli packages to support the America is forecast to attract a majorityindustry.” of active investors and acquirers globally, © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  14. 14. 11 Powering Ahead: 2010 – An outlook for renewable energy MAFocus on... North America • Earmarking of grants, loans and loan Canada has also undertaken several The American Recovery and guarantees from the Department of initiatives such as the launch of a Reinvestment Act (ARRA), which Energy (allocated since mid-2009), CAD$1bn Clean Energy Fund by the came into effect in early 2009, and including a loan guarantee program Canadian government to invest in subsequent incentives and stimulus of US$30bn; major support includes large-scale carbon capture storage have made North America the preferred a US$249m grant for A123 Systems pilot projects and smaller-scale pilot geography for acquisitions of renewable and a US$1.37bn loan guarantee for projects of renewable and alternative energy projects or companies. Almost BrightSource Energy energy technologies (May 2009). half of European and a third of Asia- This is in addition to Ontario’s Green • State-led plans, such as California’s Pacific respondents are considering Energy and Green Economy Act decision in September 2009 to acquisition targets in North America (passed in May 2009), which supports increase its percentage of energy in the next 18 months (see Figure 2). a range of renewable energy, energy consumption from renewable The largest share of respondents efficiency and smart grid projects, energy sources to 33 percent by (36 percent) specifically stated that including the adoption of a FiT program. 2020, following an executive order they are motivated by local government This program is similar to other FiT from the Governor, and a grant incentives (see Figure 3). schemes in European countries and of US$40m allocated by ARRA to covers solar, wind, water, biomass, Although the Clean Energy and renewable energy initiatives in the biogas and landfill gas. Security Act (ACES), which would state of Virginia in October 2009 introduce a carbon cap-and-trade • An increase in the required volume scheme and federal Renewable Energy of biofuel to be blended into Standard, is still pending approval by transportation fuel from a base of the Senate, recent initiatives continue 9 billion gallons in 2008 to 36 billion to confirm the US Government’s ongoing gallons by 2022 (approved by the support for the sector.These include Environmental Protection Agency in February 2010).Figure 2: In which of these countries do you envisage your company investing in renewableenergy projects or companies in the next 1 months? (Respondents: Corporates and Investors) North America 54% 88% Other West 45% 39% European countries Middle Eastern 37% 37%North African countries Germany 37% 39% India 36% 34% United Kingdom 39% Ireland 34% China 34% 32% Other Asia-Pacific 34% countries 31% East European 26% 27% countries Russia Other 22% 20% Worldwide respondents North American respondents North AmericaSource: VB/Research 48% 33% Other West 66% © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. 33% Member firms of the KPMG network of European countries independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Middle Eastern 39% 33%
  15. 15. Powering Ahead: 2010 – An outlook for renewable energy MA 12Figure 3: What is the main reason for your company’s expected investments in these regions in the next 1 months?(Respondents: Corporates and Investors)100% Availability of renewable energy 90% Competitiveness Other 80% Market demand 70% Government incentives 60% 50% 40% 30% 20% 10% 0% North America India United Kingdom China Ireland Source: VB/Research North America 54% 88% India the installation of 20-GW of solar the creation of a competitive Other West 45% 39% While Western European countries European countries energy (both photovoltaic and solar environment for solar energy such as Germany Middle Eastern have recently thermal) capacity by 2022. It is one of development, 37%leading to 20-GW 37%North African countries reduce their announced plans to eight national programs the Indian of power, which is planned by the Germany subsidies, other countries, including 37% Government intends to deploy as part end of the third39% phase in 2022. India have increased their incentive of its National Action Plan on Climate This supplements the existing India 36% 34% programs. In September 2009, Change. This plan will be developed in Electricity Act 2003 and National United Kingdom 39% India’s Central Electricity Regulatory Ireland 34% three phases. The first phase, running Tariff Policy 2006, which make Commission announced the launch of up to 2013, will focus on installing provisions for state and central China 34% 32% a FiT scheme for renewable energy solar thermal systems and promoting electricity boards to buy grid-based Other Asia-Pacific 34% projects, including wind and solar countries 31% off-grid systems to serve communities power from renewable sources. energy. The Solar India Initiative, East European without access to grid infrastructure. 26% 27% announced Russiathe year, targets countries later in The second phase, up to 2017 involves , Other 22% 20% Worldwide respondents North American respondents North America 48% 33% Other West European countries 66% 33% Middle Eastern 39% 33%North African countries Germany 48% 29% India 32% 71% United Kingdom Ireland 45% 24% China 41% 43% Other Asia-Pacific countries 25% 52% East European 32% countries Russia 29% Other 11% 29% European respondents Asia-Pacific respondentsSource: VB/Research © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  16. 16. 13 Powering Ahead: 2010 – An outlook for renewable energy MA “The central Government in China has committed to significant renewable energy generation targets. By 2010, 10 percent of the total energy generation mix is expected to come from renewable energy sources. As of today, the country is close to reaching this target. ” Allard Nooy, Covanta Energy Corporation China • The Golden Sun initiative, launched Over 40 percent of the surveyed in June 2009, which aims to install European corporates and investors 500-MW of solar electricity across and a third of North American China over the next three years. respondents are considering Chinese Under this initiative, the Government acquisition targets in the next 18 will subsidize 50 percent of the total months (see Figure 2). Recent investment cost per project as well regulations have increased China’s as relevant power transmission and attractiveness to non-domestic distribution systems to connect corporates and investors. Allard Nooy, them to the grid President, Asia-Pacific, at Covanta • A plan to increase solar capacity by Energy, comments, “The central 2011 by the local Government of Government in China has committed Beijing (late 2009) by developing a to significant renewable energy promotion program for new energy. generation targets. By the end of This includes developing solar 2010, 10 percent of the total energy power infrastructure for the city, generation mix is expected to come which would be capable of producing from renewable energy sources. As of up to 70-MW of solar power today, the country is close to reaching this target. Examples include ” • The introduction of a standardized FiT for wind farm projects approved • Solar subsidies for new solar since August 1, 2009. installations larger than 50-kW (March 2009), with a priority on building integrated photovoltaics © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  17. 17. Powering Ahead: 2010 – An outlook for renewable energy MA 1United Kingdom • A suite of FiTs for small scale, low- the Government announced severalEuropean respondents slightly favor carbon electricity installations of up measures to support offshoreNorth America (48 percent) as a target to 5-MW which became effective renewable energy, including £60mregion for MA activity over the UK in April 2010, along with a plan for for the development of port sitesIreland (45 percent). Interestingly, a renewable heat incentive to be to host offshore wind turbineFigure 2 indicates that the UK introduced in April 2011 manufacturers as well as a £2bnIreland and China ranked at the same Green Investment Bank. This will be • £60m in funding to build wave andlevel in terms of attractiveness for invested in renewable energy, with a tidal testing facilities to pilot newMA transactions. focus on offshore wind and green technologies in strategic parts of transport schemes. Despite this,A few months after an announcement the country the largest share of respondentsin the 2009 budget to allocate £1.4bn • Up to £120m to support the growth (33 percent) who selected the UK to clean technologies and renewable of an offshore wind industry. Ireland cited public demand for greaterenergy, including £525m for offshore In addition, £8.6bn was announced provision of renewable energy as thewind farms through the Renewable in May 2009 to equip every home main driver, ahead of governmentObligation scheme, the UK in Britain with smart meters by the incentives (see Figure 3).Government proposed a Low CarbonTransition Plan in July 2009 including end of 2020. In late March 2010, “We aim in the long run to achieve grid parity without subsidies. ...we would not choose locations with poor or uncertain access to the energy source, even though they could benefit from important incentive- based regimes. ” Cord Landsmann, E.ON Climate and Renewables GmbH © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  18. 18. 15 Powering Ahead: 2010 – An outlook for renewable energy MA Other Asia-Pacific countries Large energy importer South Korea announced a considerable US$84.5bn investment plan in July 2009 to support environment-related industries and set its greenhouse gas emission reduction target at 30 percent by 2020. Although the country proposed plans to decrease subsidies in August 2009 for large- scale solar systems and reduce subsidized solar power caps, South Korea continues to reiterate its plan to play a major role in the renewable energy sector. Early this year, the South Korean government announced a smart grid plan to support the development of smart electricity grids with funding up to US$24bn. Australia’s extensive renewable energy resources are largely undeveloped (with the exception of hydro and wind). Nevertheless, the country, in its 2009 budget, announced a A$4.5bn Clean Energy Initiative to support the development of renewable energy, including A$1.4bn to support the Solar Flagship Program to fund the construction of large-scale, grid-connected solar power stations using solar thermal and photovoltaic technologies. The program aims to build up to 1,000 megawatts of solar power generation capacity to provide a large scale market demonstration of the potential of solar energy to be constructed and operational within a major electricity grid. Together with the Australian Government’s recent announcement in March 2010 to enhance the Renewable Energy Target to further encourage the deployment of large scale renewable power generation, these initiatives will assist to deliver on the 20 percent (or 41,000-GWh) target by 2020. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  19. 19. Powering Ahead: 2010 – An outlook for renewable energy MA 1 Non government MA drivers sustainability and climate change Although government incentives make agendas by improving their products a substantial impact on the direction and services. ” of investments, their limited duration Acquisition strategies are also closely is an important factor that should be associated with building market share. considered. As Cord Landsmann, The largest share of respondents Chief Financial Officer at E.ON interested in Middle Eastern and Climate and Renewables GmbH, notes, North African targets (33 percent)“Businesses are under “We aim in the long run to achieve cited public demand for greater provision pressure to hold with grid parity without subsidies. ...we of renewable energy as the main would not choose locations with poor the sustainability and driver for investment and MA or uncertain access to the energy climate change agendas source, even though they could activity in the region. by improving their benefit from important incentive-based MA deals will also be boosted by products and services. ” regimes.” Other drivers of cross- financial backers looking to exit their border MA in the sector include current portfolio companies. Venture Yvo de Boer, United Nations capital investors who reached their energy security in the form of reliable Framework Convention on Climate Change (UNFCCC) energy supply and secure production investment limit during the downturn facilities; volatile fossil fuel prices; by providing follow-on financing to market consolidation; and increasing their portfolio companies, and funds demand within society for a renewable/ that were raised over five years ago alternative energy supply. As Yvo de are desperately looking to exit some Boer points out, “Businesses are of their investments. With the IPO under pressure to hold with the market still fragile, MA is the most attractive exit route. Additional incentives government and trade organizations Sixteen government and trade collaborate with well-established organizations were surveyed this private and public companies, year, among which 7 were based in which fuels partnerships between Western Europe, 5 in North America innovators and more established and 4 in the Middle East North Africa. operators. Most surveyed government participants cooperate with utilities Most of these organizations nurture and Independent Power Producers small businesses in “clusters.” (88 percent), as well as specialist Examples include the National renewable energy companies or Renewable Energy Lab in the US, subsidiaries of integrated utilities the Vancouver Fuel Cell Cluster in (75 percent). For example, the Canada, “Silicon Fen” in the UK and Copenhagen Cleantech Cluster, the Copenhagen Cleantech Cluster launched in late 2009, comprises 40 in Denmark. Among the surveyed companies, including DONG Energy government organizations, the four and Vestas. The Finnish Cleantech most common services offered to Cluster is partnering with Yes Bank businesses are accelerated access to in India to create cross-border strategic vendors; subsidy and grant partnership opportunities. schemes; mentoring; and funding. To achieve their objectives, most © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  20. 20. 17 Powering Ahead: 2010 – An outlook for renewable energy MAAfter a year on the sidelines, corporates andinvestors have regained confidence and arenow actively looking to make acquisitions in2010 in the renewable energy sector. More than90 percent of surveyed respondents areconsidering MA activity in the next 18 months.MA rises to the top ofthe agenda Last year, 45 percent of the surveyed respondents were either not planning to make any acquisitions during the following 12 months or were undecided. During the first quarter of 2010, 150 transactions with a combined value of US$14.3bn were announced, compared with 61 deals representing US$8.8bn during the first quarter of last year (see Figure 1). This momentum is expected to be maintained in 2010, with companies continuing to announce acquisition plans on the back of prior-year profits, in parallel with a fundraising and in some cases to counterbalance disappointing trading. Recent examples include Boralex Inc., the Canadian diversified renewable energy company, which intends to pursue its acquisition strategy throughout 2010 along with obtaining financing and developing projects; and Schneider Electric SA, which intends to maintain its acquisitions strategy despite a 49 percent decline in profitability in 2009. Inorganic growth through acquisitions will essentially be twofold: technology- motivated, driven by technology or manufacturing conglomerates’ intent on entering or expanding their activities in the sector and establishing an end-to-end solution or service; and client-side motivated, to get closer to the end-user. Both types of transactions are set to intensify. As Thomas Kneip notes, “Corporates, already active in the renewable energy sector, will seek to integrate horizontally for geographical expansion or downstream to get access to installers and system integrators. ” © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

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