Survey reveals opportunities

The majority of respondents surveyed in the Asia-Pacific region (64%) identified their region as having great growth potential, according to the ‘Turning Up the Heat — an insight into M&A (mergers and acquisitions) in the renewable energy sector in 2008’ survey.

While one-half of the world’s energy leaders are concerned that a bubble may be developing in the renewable energy sector, Australia is seeing an increase in opportunities as the European market redeploys value to the emerging Australian market, according to a survey released by KPMG International.

In the survey a poll of director-level executives across more than 200 global power and utilities companies, suppliers and financial investors reveals a significant increase in the number of deals and a surge in prices being paid for renewable energy companies.

Antony Cohen, KPMG partner and head of the Energy and Natural Resources practice in Australia, said that the over-heated European market is creating opportunities in Australia as renewable energy market participants seek to invest in the emerging and growing market.

The survey reveals that the rate and size of M&A activity in the renewable energy sector has been growing rapidly. Analysts estimate that 2007 saw US $55.7bn in M&A transactions globally — up by 47% from 2006.

While the reasons for this increase in activity are varied, the overall effect has been to push valuations to record levels. Despite these high valuations, 56% of respondents believe that valuations will increase (compared with just 10% expecting the opposite) and that the size and ambition of deals will grow in the next three years.

“The pace of consolidation will accelerate, but not for all technologies. Roughly 60% of executives surveyed expect to see further consolidation in wind, solar and biofuels and 30% expect to purchase such a company themselves between now and 2010. The figures are about half for hydro, and even less for tidal. This is purely a question of economics: wind especially, but solar and biofuels to a lesser degree, are becoming more financially viable and have pricing structures designed to support them as technology improves,” said Cohen.

Mathew Panopoulos, director in KPMG’s Advisory practice who focuses particularly on renewable energy, explains that the renewable energy industry is at an early stage of its development with wind energy likely to be the primary beneficiary of higher targets, given Australia is blessed with ‘world class’ wind resource.

“The difference between wind and most other renewable energy sources is that it is cost effective when compared to other competing technologies. Australia has a significant pipeline of wind energy projects in feasibility, approval or construction stage which is providing significant investment opportunity for all market participants,” said Panopoulos.

Looking ahead, the majority of respondents surveyed in the Asia-Pacific region (64%) identified this region as having the greatest growth potential and showing the best prospects for renewable energy ‘buy’ opportunities.