KMPG has published its annual
survey of global renewable energy mergers and acquisitions
(M&A), entitled Powering Ahead: 2010.

The report has pinpointed the “hot spots” for deal activity in
2010/11 and provides an insight into the global M&A activity in
renewable energy. The findings are based on a survey of over 250
senior executives active in the renewable energy industry
worldwide, which was conducted between January and March 2010.

According to KMPG, who wrote the report in collaboration with
VB/Research, a specialist renewable energy research and data
provider, the survey found a change in appetite from last year’s
findings, with biomass as popular as solar and wind.

Andy Cox, energy partner at KPMG in the UK, commented: “While
wind is still seeing enormous deal activity at the moment, our
research has shown that dealmakers, particularly the large
companies such as the utilities, are looking for the next global
trend and biomass looks set to be the ‘new wind’.

“Biomass plants have the potential to
yield much higher returns than other renewable sources: a well
executed biomass plant can deliver substantially greater economies
of scale than wind; and the heat generated from incineration can
supply neighbouring buildings, creating another revenue
stream.”

He added that, more broadly, the potential for biomass to
operate as a base load power source provided advantages in
comparison to intermittent technologies such as wind and solar in
large scale electricity system integration.

Challenges

However, he noted that investors in biomass had “important
challenges” to address, in particular focusing around the
visibility of long term fuel supply and pricing.

“These challenges are hampering the availability of funding for
many projects. Furthermore, securing funding for construction is no
mean feat in the current environment with lenders requiring a
‘turnkey’ construction contract, which effectively guarantees the
construction cost and delivery program for projects, with clear
contractor penalties if there are delays”, he explained.

“Unfortunately, turnkey contracts in biomass do come at a price:
adding up to 20% to the capital cost. Despite the fuel and
construction challenges, it is interesting to see that the
companies with the money to support their convictions are driving
biomass forward alongside their wind and solar portfolios, which
are arguably easier to deliver in the short to medium term.”

Some of the survey’s key findings include:

• Biomass is the most attractive type of renewable energy source
  with 37% respondents intending to invest in this area; closely
  followed by solar at 36% and onshore wind at 35%;



• 145% jump in renewable deal activity compared with last year
  despite 60% believing securing finance for acquisitions was harder
  in the previous 12 months;



• UK is the third most popular country for future deal activity
  (US and China are first and second respectively).

Subsidies

The survey also found that government support for renewable
energy is of “vital importance” for investment purposes, however,
the UK was the only country where consumer demand was cited as the
top attraction for investment, rather than government subsidy
everywhere else.

Mr Cox said: “The ‘push me, pull me’ effects of government
subsidies can be seen none more keenly than in the renewable energy
M&A market. The research shows that the US, India and China,
particularly, are hugely appealing to companies and investors by
virtue of government incentives.

“Conversely, where subsidy regimes are stepping down, the
negative impact on companies directly affected is creating
distressed acquisition targets, such as in solar where schemes in
Spain and Germany are being canned.”

According to KPMG, renewable energy M&A saw an increase of
145% in deal volume in the first quarter of 2010, compared with the
same period in 2009 - with 150 deals in Q1 2010 and 61 deals in Q1
2009. There was also a 63% increase in value, standing at
$14.3billion (£9.9 billion) in Q1 2010 and $8.8 billion (£6.1
billion) in Q1 2009.

Mr Cox added: “We have seen a much busier market in Q1 2010,
with a massive jump in deal volume compared with Q1 last year. It
seems that price reality has finally started to dawn with company
vendors and acquirers more amenable to cutting a deal than they
were a year ago; but the number of buyers is still limited by
access to capital.

“Indeed despite last year’s respondents expecting financing to
ease in the year ahead, 60% found accessing finance harder in the
past year. Those companies that can access finance are typically
paying three times more margin, compared with three years ago.”

The full href=”http://www.kpmg.co.uk/pubs/194525%20MA%20renewables%20survey%20export_v18_Accessible.pdf”
target=”_blank”>Powering ahead: 2010 report is available for
download