recognising trends
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Recognising trends
Global Outlook 2012
M&A in Renewable Energy
mm_cover_U2.indd 1 29.05.2012 15:57:06
Content
Foreword 3
Spotlight: Germany 4
Spotlight: Spain 6
Spotlight: Italy 8
Spotlight: Growth markets 10
Spotlight: Grid parity 16
Methodology 19
Survey findings 20
Respondent information 41
Historical data 44
Rödl & Partner Contacts 49
Recognising trends
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Foreword
Rödl & Partner are pleased to present the third edition of M&A in Renewable Energy – Global Outlook 2012, published in association with mergermarket. Based on interviews with 100 renewable energy M&A professionals from the corporate, private equity and investment banking communities, this study provides a comprehensive view of the renewable energy market from those who know it best.
The renewable energy sector has proved remarkably resilient despite eurozone volatility,
constrained bank lending and changes to government incentive programmes. In 2011
the sector saw 210 deals worth €25bn, representing a 135% increase in value and a
modest 2% increase in volume against 2010.
Respondents are optimistic that this upward trend will continue, with the large majority expecting
an increase in M&A over the next 12 months. Most deals are expected to take the form of strategic
acquisitions rather than private equity buyouts during this period, reflecting acquirers’ appetite for
technology and know-how and their desire to grow market share.
The wind and photovoltaic (PV) subsectors are expected to see the most significant M&A activity,
reflecting their rapid sophistication and gradual move toward grid parity. Specifically, respondents
believe Germany, Italy and Spain could achieve wind and PV grid parity by 2015 for 2016, while
Germany in particular could achieve wind grid parity as early as 2014.
A central theme of this year’s study is the rise of emerging markets: 91% of respondents this year
– compared to 67% last year – describe emerging markets as key to the renewable energy sector’s
growth, and an additional 90% say the Asia-Pacific region will be a significant market for M&A this
year, if not the most significant (46%).
These are all encouraging signs for potential investors, but the road ahead is not clearly paved.
Government support – a key external driver of M&A, according to three-quarters of respondents –
has been shaky in recent months, with some European governments scaling back incentives in
response to sovereign debt concerns. Yet 84% believe governments are actively promoting renewable
energy development, especially now that rising demand and high commodity prices have triggered
a sharper focus on energy independence and fossil fuel alternatives in many nations.
In addition to the findings outlined above, this report examines the major drivers of renewable energy
M&A today, including regulatory changes in key markets and macroeconomic developments. We
hope you find this third edition of the M&A in Renewable Energy – Global Outlook 2012 both
interesting and informative. As always, we welcome your feedback.
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Christian Rödl Martin WambachManaging Partner Managing Partner
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Spotlight: Germany
The world is watching Germany carefully. The country’s renewable energy industry is in a state of transition. Sparked by political influences in the aftermath of Fukushima and technological progress, regulatory developments are forcing extraordinary levels of growth and demanding ever greater efficiencies. This transformational period will help to shed light on which technologies and methods work best, while also generating the necessary investment to deliver further technological advancement.
As often happens when industries are in a state of flux, there have been growing pains in Germany.
The photovoltaic space has seen a raft of insolvencies and consolidation in the wake of reduced feed-
in tariffs and price pressures on cells and modules. Those companies with access to capital are looking
to diversify or enter new markets. “Larger players,” says Anton Berger, Partner at Rödl & Partner,
”are looking at international markets, such as Romania or Bulgaria, or even further afield to India or
South Africa.” At the same time, several smaller players are now seeking buyers or investors, creating
an opportunity for new or foreign players to enter the market. In January, Chinese firm LDK Solar
purchased German company Sunways for €53m, the first acquisition by a Chinese solar company
in Germany and a coup in terms of securing a European distribution network.
Although there is serious upheaval in the solar industry, the tariff cuts are ultimately geared towards
greater efficiency, and growth rates are high across other renewable segments. Though, as Kai
Imolauer, Associate Partner at Rödl & Partner, points out, some of the larger players have been late
to react. “The large public utilities like RWE, E.ON, EOS and Vattenfall didn’t realise renewable energy
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would come to represent such a major proportion of the energy mix. They were sleeping,
but now they’ve woken up and are looking for acquisitions to expand their footprint.”
One such example occurred last November, when Vattenfall Europe Windkraft purchased the
wind power business belonging to South Korea’s Busan Mutual Savings Bank for €81m. Elsewhere,
Swiss-based EOS Holdings has also targeted aggressive expansion last May, acquiring five wind
farms with enough capacity to supply 80,000 households a year, and through its subsidiary EOS
Wind Deutschland purchasing three further wind farms from Denmark’s Scan Energy. Such levels
of investment make sense, says Berger, who remarks, “Wind and other forms of renewable energy
benefit from stable levelised costs of electricity: you aren’t exposed to volatile commodities markets
as with, for instance, the gas-powered generation.”
Given the high rate of growth in renewable energy generation, Imolauer notes, there is a greater
requirement for increased investment in the ancillary components. In particular, transmission systems
will have to evolve in order to cope with greater loads, making distribution infrastructure another
prime area for increased levels of M&A. The offshore sector has seen evidence of this as recently as
this February, when Japanese firm Mitsubishi Corporation bought a 49% stake in two high-voltage
cable projects BorWin1 and BorWin2 from Netherlands-based TenneT BV. Given the challenging
financing climate, equity sales such as this are a useful way for developers to secure financial support
for ongoing expansion in Germany’s offshore wind space.
Another ancillary area receiving attention from investors is storage. Imolauer explains, “We have
a lot of volatile electricity production in Germany, so the problem of storage must be solved. It’s
no use if you have a lot of wind power and the grid cannot cope because consumption is too low.”
This problem, as well as that of excess demand, could be solved by more advanced power storage
solutions in the future. He notes that on a domestic scale, battery systems are improving as time goes
on. “Presently, we see a decline in battery costs of 13%–15% per year, which could grow stronger
if manufacturers from Asia increase their output.” The price of a battery still currently tips the cost of
solar installations above grid parity. If the price comes down sufficiently, such arrangements would be
ideal for small-scale photovoltaic or wind installations, and could, thinks Imolauer, allow households
to become up to 80% self self-sufficient for energy.
On an industrial scale, energy storage solutions are likely to attract more capital in the future. “Public
utilities are investing heavily in storage solutions,” Imolauer explains, going on to say that of the two
popular methods, gas storage is the most exciting. This form of storage avoids the environmental
issues associated with finding discharge locations for pump storage facilities. With wind-to-gas when
grids are full and wind turbines running, the electricity is used to isolate hydrogen, while CO2 is
obtained from biogas. These inputs are then converted to methane (CH4 ). This methane gas can then,
theoretically, be stored in the country’s gas distribution network and allows electricity production at
peak times, when PV and wind production is down.
Using Germany’s gas network as storage is an exciting possibility, and while developments as visionary
as this may be a long way off, they do give an insight into the ongoing innovation taking place in the
sector. The challenges to reduce costs across all renewable sources, to develop more sophisticated
storage and grid management solutions, and to make up for the energy gap left behind by nuclear
energy, are all likely to stimulate high levels of M&A activity in the years ahead.
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Spotlight: Spain
Spain enjoys a position as one of the world’s leading markets for renewable energy development with nearly 40% of the country’s electrical output coming from renewable energy and over 60% from sources that do not emit CO2. At this level, the country’s renewable energy production already exceeds the EU’s 2020 climate change targets and the solar industry is on track to reach grid parity by as soon as next year.
Certainly, the Spanish renewable energy industry is among the most mature globally and offers
plentiful M&A opportunities simply by virtue of its scale, but big changes afoot in the sector may
cause a re-evaluation by investors, those based both locally and abroad.
Years of state largesse helped to bolster investment in Spanish renewable industries – with solar
and wind power projects experiencing particularly strong growth. “But this era has now come
to an abrupt end,” says Georg Abegg, Partner in the Madrid office of Rödl & Partner.
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“We have a new government, which, as you can imagine, has to confront serious budget
challenges. One of the first steps taken in this regard was to cut feed-in tariffs in the renewable
energy sector,” he explains.
“Projects that already have a tariff subscribed will continue to receive subsidies, but the special
regime for new projects has stopped,” adds Abegg. The decision to not retroactively touch the
tariff regime has helped the government to avoid the backlash its predecessors suffered after
cutting subsidies for existing projects in 2010 – a move that provoked lawsuits with over a dozen
investors seeking arbitration of around €600m against the Spanish government.
The steps taken by the newly inaugurated government, led by Prime Minister Mariano Rajoy and
his Partido Popular, are in line with similar moves taken in Germany and Italy this year, and follow
attempts in the UK to reduce subsidies last year – a move that also resulted in legal challenges.
Surveying the lay of the land in the wake of the subsidy cuts, the renewable energy market in
Spain appears in flux. “Grid parity is possible,” says Abegg, “but the financing picture for energy
development projects is, as of yet, not clear.” He believes this will require two things: “The
government needs to first develop clear regulations for the export of electricity and second,
the economy has to enter some period of recovery.”
This is one of the big problems that producers in the Spanish market face, particularly in the solar
niche. The investment boom of recent years has left Spain with an oversupply of installed capacity
at a time when demand in the country is falling. Constrained demand is not simply a transitory
phenomenon, but a structural feature of the Spanish economy, which is not expected to bounce
back to stronger levels of energy consumption until the economic imbalances unwind over the
coming few years.
Even in the face of such headwinds, the Spanish market is not without solid long-term opportunities,
however. Irradiation levels in the sun-bleached south of the country make photovoltaic projects prime
for competing at grid parity. Taken together with the falling prices for equipment and the country’s
110,000-strong renewables workforce, Spain remains an attractive place for fresh investments.
The announcement by Würth Solar and Gehrlicher Solar to develop Europe’s largest solar plants
in the coming years attest to this. Würth is planning a 287-megawatt project in Murcia at an
estimated cost of €277m, while Gehrlicher is planning a 250-megawatt project in Extremadura,
worth an estimated €250m. The projects, which will be based on the new subsidy-free regime,
will be roughly three times larger than any existing solar plants in Europe and offer strong signs
of confidence in the Spanish market.
Abegg believes these sizeable investments offer hopeful signs for the future, but notes that, in
general, “People are still getting their feet wet in the market at the moment, but waiting until
new regulations for grid access and connectivity are in place before they get in the water.”
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Spotlight: Italy
Italy is one of the world’s premier markets for green energy and a favourite among financial and strategic investors thanks to a history of generous government support under the Conto Energia regulatory framework. Roberto Pera and Svenja Bartels, Partners in Rödl & Partner’s Italian practice, explain, however, that lack of clarity in the long-awaited fifth generation of Italy’s renewable energy legislation has made for a murky regulatory picture in the renewable market.
This has heightened uncertainty for firms looking to break ground on new projects. It is clear from
the Government’s draft legislation that there will be a move to cut feed-in tariffs, but it is not clear
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what final form subsidies and regulations will take under the new register, calling into question
the potential profitability and viability of new projects.
This has given a boost to M&A investing, however. Roberto Pera explains, “The legislative uncertainty
brought the market to a stop for new project developments, but the real M&A market, meaning the
sale and purchase of existing power plants, has become an increasingly attractive investment option.”
The Ministry of Economic Development plans to implement the new decree in the solar industry once
its €6bn allocation of feed-in tariffs for the niche is reached. The exact date remains indeterminate,
but will come due before the end of this year. “And this,“ says Svenja Bartels, “is causing investors to
look seriously at projects that are operating at grid parity or close to it.”
According to the draft legislation, slashes to the solar tariff regime are expected to be steeper than
for classes of other renewable energies. While this has left some in the space feeling burned,
companies facing reduced government incentives will be forced to become more efficient and
competitive against traditional energy providers.
The cutbacks are projected to be in the range of 35% on average for solar, but just 10–15%
elsewhere. Indeed, many in the industry have expected more generous support. Other renewable
energy sources facing less severe cuts in the wind, biomass, biogas, geothermal and hydroelectric
spaces will become subject to the new framework starting in January 2013. But even under the
new framework, these assets could become more attractive to investors as PV loses its lustre.
“Photovoltaics have long been the focus of investors, having received significant government
support, but there have also been smaller booms elsewhere such as wind and biomass, which
have been very interesting recently,” says Bartels. Indeed, she adds that, “Italy’s biomass subsector
is one of the most competitive in Europe right now from a feed-in tariff perspective, although
it has been targeted for cuts.”
When there is greater legislative clarity, strategic and financial renewable energy investors may be
more eager to deploy capital toward new renewable energy project developments. As Bartels notes,
however, “Investors will be looking for a clear view on what is still feasible.”
On the M&A side, there has been less buy-side activity among strategic investors in recent times says
Pera. However, big utility players with healthy balance sheets may give a boost to transaction flows.
Enel has a war chest of more than €6bn which it plans to spend over the coming years, both at home
but also in emerging markets.
Thriving investment activity from financial investors has been one of the biggest drivers of M&A
in the renewable energy space recently. “US and German investment funds as well as private investors
have been particularly active buyers,” says Pera.
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Spotlight: Growth markets
Given the rising demand from countries like China and India, and growing support from government bodies to develop renewable energy sources in these areas, optimism towards emerging markets for the future development of the renewable energy industry comes as little surprise. It is worth too revisiting the USA, where ample opportunity for growth ensures bright prospects for future deal-making activity.
USACompared to its European peers, the USA is still somewhat of an emerging market when it comes
to renewable energy. The country sources the large majority of its energy from petroleum and
coal, and just a slim 9% from renewable sources. Looking specifically at electricity shows a slightly
higher 13% from renewable sources – an encouraging sign, given the goal put forth by President
Obama just four years ago to source 10% of electricity from renewable sources by 2012.
Still, the country’s renewable energy sector is dynamic, and the regulatory environment remains
largely uncertain, making it difficult for investors to confidently back new projects. The solar
industry is a case in point: the Treasury Department‘s cash grant programme, which provides a
30% cash grant in lieu of the 30% investment tax credit, has been a successful stimulus for solar
development, but its expiration at the end of 2011 leaves investors’ next moves largely uncertain.
The presidential election season through November 2012 adds another layer of uncertainty, and
casts doubt on whether the cash grant programme will be extended before then. At the moment
there is no apparent political appetite for a federal feed-in tariff, or direct investment by federal
and state governments, despite indications that such subsidies would be the most effective way
to increase the share of renewable energy in the country’s energy mix. Generous federal tax
credits remain in place through 31 December 2013; however it remains to be seen whether
these will be as powerful a stimulus at the Treasury Department’s cash grant programme.
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At the same time, investors encounter frequent alterations to tax credit rules, making it difficult
to map out long-term strategies or establish accurate financial forecasts. There are also variations
across state lines when it comes to what constitutes renewable energy, minimum requirements
for eligibility, implementation and timing, and states have also set different targets for renewable
energy use over the next decade. For instance, Arizona is aiming for 15% of electricity sales to
come from renewable sources by 2025, but these same figures are 25% by 2025 in neighbouring
Nevada and an even more ambitious 29% by 2015 in New York.
Ullrich Kämmerer, Partner at Rödl & Partner‘s US office determines: “Different than in Germany,
and besides the aforementioned tax credits, the most important ‘incentives’ for renewable energy
development are the Renewable Portfolio Standards. Currently, 36 states have implemented
such standards which will require utility companies to supply a certain minimum share of their
electricity from designated renewable resources. Generally, these resources include wind, solar,
geothermal, biomass, and some types of hydroelectricity, but may include other resources such
as landfill gas, municipal solid waste and tidal energy.”
In addition to regulatory hurdles, there are more general concerns about the speed of the
country’s economic recovery and the long-term effects of housing and banking crises. But
recent deal flow suggests there is nevertheless an appetite for new investment. One of the
most high-profile deals of the past year came from Berkshire Hathaway’s MidAmerican Energy
Holdings, which invested US$2bn into the Topaz Solar Farm, a 550-megawatt photovoltaic
project in southern California. And in the wind industry, Canada-based Alonquin Power & Utilities
Corp. purchased a 51% stake in four wind farm projects in Illinois from Gamesa Corporacion
Tecnologica for a consideration of €675m – a 480MW project that highlights
the benefits of deploying foreign expertise in the US market.
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These are just some of the many examples of M&A deals taking place despite difficult market
conditions. There continues to be an active push toward renewable energy development in
the country, thanks to government support and a lively public discourse on the environmental
impact of fossil fuels. Meanwhile, traditional oil companies continue to diversify their portfolios
to include wind, solar and biomass, increasing M&A activity in the process.
According to Kämmerer, the largest hurdle for future growth of the US renewable energy
market, including M&A transactions, is the aftermath of the financial crisis. The wind and solar
parks, which are at the end of the supply chain, are still facing financing difficulties, banks are
still reluctant to grant loans, and foreign equity investors are still seeking more conservative
investment alternatives outside the US.
These challenges notwithstanding, however, the domestic US tax regime, renewable energy
tax credits and provisions of the US-German tax treaty making it possible for German equity
investors to generate tax-free income from both countries, may help to foster a turnaround
within the next 24 months.
South Africa South Africa has enormous potential for renewable energy development – its climate should
make it easy to harness solar energy and developing the necessary infrastructure would greatly
improve economic growth prospects. South Africa is perhaps the most advanced country for
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renewable energy development in a region that is seeing ever more countries take steps to foster
growth in the sector. For instance, a small number of countries have had feed-in tariffs in place
for some time, like Algeria and Tunisia, and even Nigeria, which is predominantly an oil and gas
country is at work on a renewable energy plan.
“Even in South Africa, however, the market is not yet ripe for developing small to medium-sized
enterprises (SMEs),” says Ulrike Brückner from Rödl & Partner’s Africa office with a specialty in
South Africa. “Capitalising on the tremendous opportunity that exists there can be challenging,
as transparency issues cloud the M&A process. All of the decisions to invest in Africa have to
be very comprehensive and well thought through. Even renewable energy programmes with
guaranteed incentives do not necessarily replace the preconditions you need to have when
entering the African market.”
Looking at Africa as a whole, the renewable energy sector still has a long way to go. The concept
of renewable energy has not evolved in Africa in the same way it has evolved elsewhere. Indeed,
while many North American, Western European and Asia-Pacific countries have accepted
renewable energy as a critical part of gaining energy independence and minimising environmental
damage, in African countries these issues are not part of the broader public dialogue. There is a
different perception of renewable energy in the African market. Renewable energy is not one of
peoples’ central concerns. They are happy when they get energy – but the public perception is
not yet that it’s better to get energy from renewable sources.
European players have actively expanded into Africa through M&A although deal structures are
not always straightforward strategic acquisitions. An example from 2011 is Solarpack, the Spanish
solar power plant developer which started operating in South Africa through a joint venture with
local partner Kabi Energy, valued at approximately €135m.
Investments like this show that strategic and financial investors are tapping into Africa despite risks,
and that local partners are there on the ground. “Ultimately,” says Brückner, “the development
of renewable energy is necessary to build out Africa’s economic growth story: If you don’t bring
renewable energy to Africa, they can’t justify the growth they have now. They need it there and
there is definitely great potential.”
IndiaFinally, one of the most important emerging markets for renewable energy development is India
– although as Jan Eberhardt from Rödl & Partner’s Mumbai office explains, the term 'emerging
markets' does not necessarily fit. Ever-growing demand has made the development of renewable
energy a necessity for India, rather than just an alternative. Thus the Government is actively
encouraging the establishment of new sources, like biomass and solar, through tax benefits
for companies going green.
“With the wind energy market established and running viably, currently at over 16 GW installed
capacity, the Indian Government concentrates on promoting solar power through the ‘National
Solar Mission’, including PV as well as solar thermal projects,” says Eberhardt.
The wind category has already undergone substantial consolidation and continues to see fresh
interest from investors, particularly from the US. Indeed, take wind as a starting point. With a
total installed capacity close to 15 GW, and growing by about 300 MW each year, India is the
fifth largest wind market worldwide in terms of installed capacity. So it comes as little surprise
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that conglomerates like GE Energy and other high-profile investors – ranging from international
investment bank Goldman Sachs to the International Finance Corporation (IFC) – have all made
their mark there. As recently as early 2011, Goldman Sachs acquired a majority interest in ReNew
Wind Power for a consideration of US$202m, in a deal aimed at strengthening ReNew’s financial
and operational performance; separately, the IFC acquired a 10% stake in NSL Renewable Power
Private Limited, the India-based company that develops, owns and operates wind and biomass-
powered power plants from India-based conglomerate NSL Group for US$20m.
These are only two of many examples that showcase India’s importance to the international
investment community. M&A in the country is likely to accelerate as the year progresses as investors
in developed markets seek growth opportunities in specific subsectors like wind. At the same time,
‘younger’ subsectors like solar are undergoing domestic consolidation; 2012 so far has seen the
acquisition of solar project developer EverSun Energy by Tecpro Systems, a diversified material
handling system company backed by private equity firm Avigo Capital Partners.
Deals like these highlight India’s aggressive expansion efforts for solar. “To increase the current
solar capacity from less than 100 MW to 20,000 MW in 2020 seems rather ambitious but it
shows that India is resolved to move ahead,” says Eberhardt.
While acknowledging India’s ample growth prospects, Eberhardt stresses that investors should
approach new opportunities pragmatically: “One issue for the builders of solar plants is the three-
year lock-in period for the shares in any SPV company installed under the Solar Mission program.
In consequence, any investment architecture has to be planned carefully.”
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Spotlight: Grid parity
Respondents to this year’s survey predict that grid parity in most European countries will be achieved between 2015 and 2016 for both solar photovoltaic and wind. These predictions are fairly optimistic but entirely realistic: despite volatility in the eurozone and uncertainty surrounding feed-in tariffs in many Southern European countries, lower input costs have made grid parity realistically achievable for many renewable energy producers, especially in the wind and solar segments. These currently have one of the lowest levelised costs of energy generation in the renewable space with a very high predictability of their total costs of ownership.
Now that renewable energy is able to compete with more traditional sources of power, says Ralf Ott,
Renewable Energy Consultant in Rödl & Partner’s Nuremberg office, the industry is at an important
turning point and the pressure is on both businesses and governments to develop solutions for efficiently
integrating renewable sources into the overall energy mix.
Prices for PV modules have been falling due to a glut in supply and falling demand from the largest
market (Europe), which has cut profits at some of the major manufacturers in the US, Asia and Europe,
igniting consolidation and restructuring.
The effects are being felt all the way down the supply chain. As Ott points out, price reductions for PV
systems such as cells and modules led to a decline in terms of levelised cost of electricity (LCOE) at a
disruptive pace. ”In Germany, we always said we wanted to reach grid parity by 2020, for Italy or Greece
it was around 2014; however, due to greater than expected cost reductions for installing solar panels,
these targets will be reached ahead of time.“
Broadly speaking, this is a positive development: cost reductions in solar power generation have justified
the economic case for solar and helped to stimulate the installation of green energy systems. However,
in order to understand what steps need to be taken to continue progress, it is important to understand
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what Ott calls the ”dynamic effects” of such price changes at the energy spot market and new costs
for grid reinforcements and extensions. However, these costs have to be taken into consideration when
talking about LCOE and dynamic grid parity.
These again vary depending on the region in question and the segment of renewable energy.
In Germany, the price of electricity at peak times has fallen due to a high concentration of PV energy
production, known as the Merit Order Effect. Falling prices put pressure on renewable energy
producers, who also have the difficult task of making projections about future revenue in the absence
of a feed-in tariff.
Furthermore, whilst prices are falling due to overcapacity, the simultaneous removal of feed-in tariffs by
the Spanish Government has put a number of producers in a more difficult position. Similar problems
are being faced in Italy and Greece, where the economic climate has put downward pressure on
demand too.
Despite obstacles, investment continues as companies with advanced technology look beyond their
borders to monetise their intellectual property. Two German companies, Würth Solar and Gehrlicher
Solar, recently made separate announcements to build Europe’s largest solar power plants in Spain,
both of which are expected to operate at grid parity. This could demonstrate the competitiveness of
solar projects on a large scale, and is occurring in spite of the removal of government support in Spain.
In Europe, further advancement is now needed in order to create efficient energy systems that cope
with the fluctuation of renewable energy generation. For residential solar power generation, which has
been successful in Europe, the next step will be to develop local storage solutions so that the energy
from residential generation systems can be used throughout the day. Producers of inverters like SMA are
already developing suitable products in order to manage solar power generation and household demand.
On an industrial scale, the development of storage solutions is already gaining momentum in the US,
Germany and Japan. “Firms such as SolarFuel,” mentions Ott, “are designing electrolysers and machinery
to produce a transportable fuel such as hydrogen or methane – a technology commonly known as
power-to-gas. As these systems continue to evolve, the development of smart grid technology will help
to synchronise energy generation and consumption, which is one of the biggest obstacles to overcome
in order to reach grid parity, achieve cost savings and improve overall efficiency.”
For wind and solar energy, costs now are at a level such that grid parity is achievable, so that the key
concern will be raising sufficient funds to finance new projects, particularly as realising some of the
best opportunities will require cross-border acquisitions or joint ventures, especially in emerging markets.
Of course, the term grid parity has to be defined for each country and market segment.
In Europe, the US, China, and even in emerging countries, where renewable energy technology
will be able to produce energy at grid parity, greater efficiency will be achieved when the underlying
infrastructure to harness renewable energy sources receives the attention it needs. Businesses have
to develop the necessary technology to build smart grids and smart homes that will achieve this, but
governments also need to minimise bureaucracy and design a regulatory framework to help move
energy distribution and consumption to the next level. After overcoming these barriers and correctly
calculating LCOE, grid parity can be achievable and renewable energies will be competitive across the
globe. The design of electricity markets has to be revised in order to cope with these new developments.
New ideas for sustainable success
As one of the leading professional services fi rms in the fi eld of renewables, Rödl & Partner has decades of experience in advising the full spectrum of interested parties – from utilities in Germany to project developers in India, engineering groups in Brazil and investment funds in USA.
Our thorough and practical knowledge of the renewables markets ensures that our clients get the best return from their opportunities and have the right answers to proceed – anytime and anywhere in the world.
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Methodology
In the first quarter of 2012, Remark, the research and publications division of The Mergermarket
Group, interviewed 100 senior M&A practitioners – including the corporate, private equity,
venture capital and investment banking communities – involved in the renewable energy sector.
Respondents’ regional backgrounds include Africa, Asia-Pacific, Central & South America, Europe
and North America. Respondents were asked to share their views on the most pressing issues facing
renewable energy investors in 2012, including regulatory obstacles, financing availability and broader
economic conditions. All feedback is anonymous and results are presented in aggregate.
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Survey findings
Respondents are largely optimistic for renewable energy M&A in 2012, with 87% expecting
increased activity throughout the year. This marks a positive change in sentiment against 2011,
when 72% of respondents expected increased activity in M&A through the year.
Respondents’ optimism is reflected in their commentary, which highlights the renewable energy
sector’s steady growth and sophistication over time. A private equity respondent based in India
says this has improved investor sentiment: “Well-defined and clear distribution systems and sales
channels have been established for trading renewable energy, technology, and services and this
has encouraged investor confidence.”
Traditional energy companies’ desire to access this growth should drive M&A through the next year,
says another private equity respondent: “Companies that were focused on fossil fuels or on one
particular renewable energy source for a long time have started to diversify their activities, and they
are fulfilling their interest in renewable energy through M&A.”
Increase greatly
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201020112012
13%
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7%
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4%
65%
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7%
69%
18%
What do you expect to happen to the overall level of global M&A activity in the renewable energy sector over the next 12 months?
Perc
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of the respondents predicts
increased M&A activity
87%of respondents expectincreased M&A activity
21www.roedl.com
As far as specific geographies are concerned, 46% of respondents expect the
highest levels of M&A to come from the Asia-Pacific region, followed by Europe
and North America. It is important to note that many respondents expect M&A
to transverse regional boundaries as cross-border deal activity picks up between
emerging and developed markets.
Just as the industry’s major players seek growth in emerging markets like India and
China, emerging market players are actively seeking opportunities in developed
countries. A corporate respondent based in India states: “Renewable energy
technology in Asian and African countries has not yet evolved, so these countries
are eagerly looking for support through partnerships with European partners,
resulting in increased M&A.”
Low valuations in Europe will give abundant opportunities to these types of
acquirers, says an Italian corporate respondent: “Big companies with strong
cash reserves from Asia and America are eyeing targets in Europe,
which are struggling and offer low valuations. M&A would give these
companies direct access to the biggest renewable energy market and
access to the best technology.” North America
Most significant
Very significant
Significant
0 20 40 60 80 100
Middle East
Africa
Central & South America
North America
Europe
Asia-Pacific 46%
23%
26%
3% 19%
5% 18%
5%
2%
20%
17% 22%
31% 16%
27% 18%
Which region(s) do you expect to witness significant M&A activity in the renewable energy sector over the next 12 months?
Compared to traditional sources of energy such as coal, the main energy source in India, solar is currently more costly in absolute terms. In order to achieve the anticipated grid parity by 2022 and parity with coal-based thermal power by 2030, enormous technology deployment, development and transfer will be required. This will translate
into significant organic and inorganic growth in the industry.
Jan Eberhardt, Rödl & Partner Mumbai
Europe
87 %Asia-Pacific
is seen as the mostsignificant region fordeal activity in 2012
Percentage of respondents
22 www.roedl.com
Survey findings
The growing importance of markets like Asia, Latin America and Africa is clearly recognised by
respondents as their attitude has shifted since the last edition of this report. An overwhelming 91%
of respondents view emerging markets as very important to the renewable energy sector, up from
67% who said the same in 2011.
For many respondents, the appeal of emerging markets comes down to demand. One
respondent describes emerging markets like China as “the epicentre of energy demand” while
another goes into more detail, saying: “Significant energy demand means greater guarantee for
the investments as the energy produced will be readily consumed, thereby keeping a continuous
cash flow and reducing the cost of storage.“
Emerging markets are very important
Uncertain
Emerging markets are not very important
91%
9%
67%
22%
11%
2012 2011
In your view, how important are emerging markets to M&A activity in the renewable energy sector?
Brazil remains at the moment one of the most thriving growth markets. The renewable energy sector is the driving force for economic development, particularly in the currently lesser developed North and Northeast of the country. While water and wind energy have played a decisive role so far, solar energy is catching up and receiving greater
importance. Economic development programmes issued by the Brazilian government for these newcomer regions promise lucrative investments in the sector.
Dirk Beuth, Rödl & Partner São Paulo
Respondents reveal a
heightenedinterest
in emerging markets
Respondents reveal a
heightenedinterest
in emergingmarkets
23www.roedl.com
Most significant
Very significant
Significant
When it comes to specific industry subsectors, respondents expect M&A to be highest in
more mature categories like wind and solar. Wind power and PV are expected to see the most
significant levels of M&A over the next 12 months by 34% and 27% of respondents, respectively,
followed by solarthermal and biomass.
A corporate respondent based in Germany explains why wind and PV rank so highly: “Wind and
solar technology have undergone tremendous advancements. Now, both the costs of installation
and operation have reduced significantly with prices for solar panels and turbines coming down
by more than 15%. The wind and solar subsectors are profitable now, so they attract the
majority of new investments.”
Biomass is an interesting area to explore. Even though just 13% of respondents selected
biomass as the most significant subsector, a substantial 51% of overall respondents say
it will see very significant or significant M&A this year. A respondent from a Swedish
private equity firm says: “Governments are implementing plans for forest management and
conservation of both biosphere and energy consumption at the same time. The effective
management of forest areas and agricultural waste has increased interest in biomass.
The European region is concentrating on solar and biomass to diversify their energy supply.”
Hydropower ranks lower on the list, reflecting concerns about reliability and environmental
risks: “Compared to wind, biomass and solarthermal, hydropower requires significant capital
investments and faces considerable obstacles in getting environmental clearance as it greatly
affects the habitat of wildlife. Also hydropower plants go down in operational capacity as
the water storage depletes due to less rainfall.”
0 10 20 30 40 50 60 70 80
Geothermal
Hydropower
Biomass
Solarthermal
Photovoltaics
Wind power 34%
27%
20%
13% 17%
6% 17% 17%
3%
34%
27% 12%
16% 14%
23% 19%
Which subsector(s) of the renewable energy sector do you expect to witness significant M&A activity over the next 12 months?
Percentage of respondents
Respondents reveal a
heightenedinterest
in emerging markets
Main subsectorfor M&A activity:
24 www.roedl.com
Survey findings
The clear majority (96%) predicts that renewable energy companies will be the most active
acquirers in the next 12 months, while 73% expect private equity funds to be most active.
This mirrors other survey findings, like respondents’ predictions that cash-rich corporates will
be a significant force behind M&A, or that private equity firms looking to exit their investments
are more likely to seek strategic acquirers than secondary private equity buyers or IPO exits.
Cash-rich acquirers are a popular talking point, but there are other investment groups coming onto
the scene that warrant closer analysis. Pension funds and sovereign wealth funds, selected by 29%
and 20% respectively, are part of a broader trend of competition among non-traditional investor
groups, says a private equity investor based in South Africa: “International groups, finance houses,
manufacturers and evolving finance institutions like pension funds are interested in the renewable
energy sector and want to cash in on the wide benefits in this sector. They are competing with each
other to buy assets and project rights.”
0 20 40 60 80 100
Sovereign wealth funds
Pension funds
Financial institutions
Traditional energy companies
Private equity funds
Renewable energycompanies themselves 96%
73%
52%
45%
29%
20%
Who do you expect to be principal acquirers within the renewable energy sector over the next 12 months?
It is a clear trend for 2012 that renewable energy companies will continue to remain a dominant factor in the M&A market. This is partly due to the consolidation of this market, where smaller players will be absorbed by larger competitors. Furthermore, PE funds and pension funds are aware that renewable energy projects and parks may provide quite high yields on their investment
compared to traditional investments in other sectors.
Oliver Schmitt, Rödl & Partner Munich
Percentage of respondents
of the respondents
predicts increased M&A activity
96%expect renewable
energy companies to be the principal acquirers
25www.roedl.com
Deal structures in the renewable energy sector are most likely to take the form of classical share deals,
according to 42% of respondents, or project acquisition via special purpose acquisition vehicles
(SPVs), according to 47% of respondents, over the next five years. Project acquisitions via permit
acquisitions are not widely expected to be a common deal structure during this time. Tellingly,
the percentage of respondents citing SPVs as a popular deal structure has increased steadily
since 2010.
The popularity of SPVs may reflect their flexibility. One respondent says: “Utility companies
are making a number of project acquisitions through SPV, which allows them to develop
projects as per their need.” Another states: “SPV allows the company to go ahead with the
various project development activities by itself.” A French respondent states: “There are two
main reasons that SPVs will be favoured. One is that sellers that do not wish to sell themselves
completely are able to sell only a stake. Secondly, SPVs ensure financial credibility for buyers.”
Once again there are important regional variations in respondents’ feedback. In emerging markets,
says one corporate respondent from India, SPVs help to mediate transparency concerns: “We have
made significant project acquisitions through SPVs. It erodes the financial risk and greatly helps in
developing projects in countries where the political stability is not there, like Africa.”
Classical share deal – acquiring (a stake in) a renewable energy - focused corporation
Project acquisition by acquisition of a special purpose vehicle (SPV)
Project acquisition by acquisition of permits
A combination of any of the three
0
10
20
30
40
50
60
70
80
90
100
201020112012
8%3%
20%
5%16%
18%
66%
40%
35%
47%
42%
What do you expect will be the dominant M&A deal structure in the renewable energy sector over the next five years?
Perc
enta
ge o
f re
spon
dent
s
of the respondents
predicts increased M&A activity
SPVs aregrowing
in popularity
26 www.roedl.com
Survey findings
Very significant
Moderate
Insignificant
Government support is by far the most important external driver of M&A, selected by 76% of
respondents. A corporate respondent based in Singapore says that state involvement alleviates
investors’ concerns and improves confidence: “Government support ensures a smooth clearance
of all roadblocks like labour and environmental regulations and easy access to finance.”
Close to half of respondents (47%) say cash-rich corporate buyers will be a very significant force
behind M&A deals in 2012, and many in this group point out that corporate purchasing power
will target distressed opportunities throughout the year.
Regional deal flow will highlight the importance of all of these factors together, says the vice president
of a renewable energy company in the US: “Competition across regions to capture market share and
establish their leadership in the highly growing and profitable renewable energy sector will be strong.
Steps have been taken by some governments to provide funding, like through the creation of the Green
Investment Bank in the UK. Governments are doing more to promote low carbon energy technologies
and adoption of feed-in tariffs, carbon reduction targets, financial incentives for investment and energy
production will boost the investments in the renewable energy sector.”
0
10
20
30
40
50
60
70
80
90
100
DistressClimate change concerns
High commodity prices
Cash-rich corporates
Government support
<1%
23%
52%
47%
18% 21%
57%
22%
47%
35%
18%
50%
32%
76%
<1%
What do you expect to be the principal external drivers of M&A activity over the next 12 months?
Energy is the key to economic growth on the African continent. Particularly in African economies, governments are the main driving force that address the growing energy demands and help develop the power sector. The recent introduction of supportive programmes by several African governments will promote the
establishment of a private sector in the respective markets. The enormous size of many of the projects will lead to an increase in transactions in the sector.
Ulrike Brückner, Rödl & Partner Berlin/Johannesburg
Perc
enta
ge o
f re
spon
dent
s
of the respondents predicts
increased M&A activity
Governmentsupport
as the most importantexternal driver of M&A
27www.roedl.com
Respondents are most likely to cite the appetite for technology and know-how as the principal
internal driver of renewable energy M&A, followed by the appetite for market share.
Low corporate valuations and favourable legislation (either new or proposed) in certain
countries are also widely expected to fuel M&A this year, according to 48% and 45% of
respondents, respectively. These drivers are expected to be even more important than the
desire for economies of scale and non-core asset disposals in the next 12 months.
Some of the internal drivers outlined here will be particularly prominent in emerging markets.
A desire for technology and know-how, for instance, is behind many of the M&A deals in
emerging markets, says the CFO of a clean energy company based in China: “More than the
developed markets, emerging markets are investing in renewable energy to ensure their energy
security. Many emerging countries – apart from China, India, Brazil and South Korea – lack technology
and know-how to develop renewable facilities, and they are attractive targets for M&A deals.”
The recent years have brought numerous projects into the Baltics – not all will be realised and many will require foreign capital. And this is precisely how interesting opportunities emerge for investors. Alongside the earnings quality, the strategic importance of these projects will play a decisive role: the market share that is to be gained, the local know-how and the still crisis-
influenced discounted acquisition prices are just as significant.
Jens Pastille, Rödl & Partner Baltics
0 10 20 30 40 50 60 70 80
Other
To dispose of non-core assets
To achieve economies of scale
To benefit from new/proposedlegislation in specific countries/regions
To benefit from lowcorporate valuations
To acquire a competitor/gain market share
To acquire know-how/technology 72%
60%
48%
45%
41%
23%
1%
What do you expect to be the principal internal driver(s) of M&A activity in the renewable energy sector over the next 12 months?
Percentage of respondents
of the respondents predicts
increased M&A activity
72% state that
know-how & technology
will fuel M&A this year
28 www.roedl.com
Survey findings
Not surprisingly, two of the most important obstacles to renewable energy investors are the financing
environment and the regulatory environment, both of which have been broadly uncertain in recent
months. Another challenge to M&A for 40% of respondents is bureaucratic inefficiency (red tape) –
a challenge that seems to be magnified in emerging markets. One respondent with experience in the
Asia-Pacific region says: “Getting environmental, labour and safety clearance from the authorities
takes significant time which subsequently increases the overall investment. Corruption can also be
a major roadblock.”
A respondent says of financing availability: “The fragile financing environment is still the biggest
obstacle for the renewable energy sector. If the debt crises continue then the Government will
not be able to inject any more capital and will be forced to cut short the incentives to focus on
more important infrastructural projects.”
Many of these obstacles are deeply intertwined – the Spanish Government’s decision to curb
subsidies in response to its debt crisis early this year, for example. One respondent says: “Debt
crises in Europe have forced the Government to scale down its renewable energy programmes
and lead to a withdrawal of incentives.”
A separate obstacle altogether will be nuclear energy, which one respondent describes as “a
clear competitor for renewable energy because of its low cost of energy production and reliability.”
Another goes into more detail, noting that many countries have a longstanding relationship with
nuclear: “Nuclear energy has become a very efficient energy source for countries like France, Japan
and Australia. These countries and many others have made significant investments in nuclear energy
and infrastructure, which makes it more difficult to back away.”
0 10 20 30 40 50
Other
Uncertainty or lack of legislation
Decrease or cessation of incentives
Guarantee of protection of investment
Political situation in target countries(eg. choice for nuclear power)
Bureaucratic inefficiencies (red tape)
Uncertainty and duration ofattaining necessary operational
permits, licenses etc.
Access to financing 49%
41%
40%
37%
35%
35%
21%
1%
What do you consider to be the most significant obstacle(s) to M&A activity in the renewable energy sector?
Percentage of respondents
For 76%
Government support
the principal external driver of M&A
Access tofinancing
remains a top concern for nearly half of respondents
The continued strained situation in the financial markets and the consequent retreat of select banks from supporting renewable energy projects has had a negative impact in securing appropriate external financing (conditions). Stable feed-in tariffs for the duration of the financing period are therefore in any case
indispensable to the financing banks.
Jürgen Siegl, Rödl & Partner Nuremberg
29www.roedl.com
Yes
No
Respondents are more positive this year than they have been in the past.
The large majority of respondents (84%) believe governments are doing
enough to promote renewable energy investments, compared to just 49%
of those interviewed over 2010 and 2011.
Respondents of various regional backgrounds – Latin America, Southeast Asia,
North America, Eastern Europe, to name a few – all appear to be equally confident
that governments are gradually coming to understand that their dependence on fossil
fuel is delicate at best. A corporate respondent from Bulgaria says: “Central & Eastern
European countries are heavily dependent on oil supplies from Russia and some Middle
Eastern countries and always live in fear that any negative tension with these countries
could possibly choke their energy supply.”
This broader trend is a big factor in respondents’ outlook for M&A. A corporate respondent based
in Latin America says: “Every country that wants to be well-prepared for the next decade needs to
have an important part of their energy needs coming from renewable resources. A clear political
vision from the government, and their decreasing support to conventional energy to focus on
renewable energy, will increase M&A activity.”
16%
84%
49%51%
Overall, do you believe that national governments are doing enough to promote investment in the renewable energy sector?
For 76%
Respondents are more optimistic about government
support
Singapore wants to be a global hub where clean energy solutions are developed, tested, and exported overseas. The main areas of focus are solar, fuel cells, bio-fuels and energy efficiency solutions. Under the Clean Energy Programme various government agencies have joined forces to develop the industry. Singapore
will continue to make significant investments in this sector, which is expected to contribute SGD1.7bn to Singapore’s GDP by 2015.
Paul Weingarten, Rödl & Partner Singapore
2012 2010/2011
30 www.roedl.com
Survey findings
For 76%
Government support the principal external driver
of M&A
Directinvestment
There is a spectrum of different measures governments can take to encourage
renewable energy development. Direct investment and tax incentives are
considered the two most effective measures, followed closely by feed-in tariffs.
Capital grants rank lowest in terms of effectiveness. However, even these are
considered moderately effective by more than half of those polled. A corporate
respondent based in Germany says: “Capital grants are helpful only for the larger
firms and do not offer much to the smaller companies.”
Looking at specific countries like Germany and Denmark, feed-in tariffs are clearly
celebrated by many investors. One respondent touts the benefits in Germany: “The
best example of the importance of feed-in tariffs is in Germany. Direct investment from the
Government always helps as it puts away the legal and environmental issues with ease.”
Another respondent, a US-based private equity investor, states: “Feed-in tariffs have grown
the renewable energy sector exponentially. These feed-in tariffs offer some guarantee to
projects and a clear view of reasonable profit.”
For 76%
Taxincentives
Very effective
Moderately effective
Not effective
How effective are the following government policies in driving renewable energy sector investment?
0
10
20
30
40
50
60
70
80
90
100
Capital grantsFeed-in tariffsTax incentivesDirect investment
38% 38%
60%
13%
52%
35%
41%
57%61%
1% 2% 2%
Perc
enta
ge o
f re
spon
dent
s
Feed-in tariffsFeed-intariffs
31www.roedl.com
of the respondents predicts increased M&A activity<25%
Crude pricesto increase by
over the course ofthe next 12 months
Over the next 12 months, more than half of respondents (56%) predict that crude prices will
increase by as much as 25% and slightly less than one-third believe it will remain stable through
the year. This marks a notable change against last year when one-fifth of respondents expected oil
prices to rise by more than 25%; that year, 47% of respondents expected a less than 25% increase.
Regardless of whether crude prices rise or fall, there are many respondents who believe
governments are finally realising the importance of developing renewable energy sources
as their traditional energy sources prove risky and expensive in the long-term. One private
equity respondent from India says: “I don‘t see any reason for the crude oil prices to
come down, but I see a number of reasons for it to go up steeply. First, oil demands are
increasing considerably; and second, the ongoing tensions in the Middle East.”
Indeed, concerns about energy independence have been exacerbated by unrest in the Middle
East and North Africa, says one respondent: “Not all countries have their own oil reserves and
they are very much dependent on oil-rich countries for their energy needs. Many times, countries
without strong ties to the political situations in oil-rich countries are made to suffer through no
fault of their own due to their dependence on these countries. Governments want to avoid this
unnecessary energy insecurity by developing their own renewable energy resources.”
0
10
20
30
40
50
60
70
80
90
100
201020112012
30%
5% 4%6%
23%
47%
20%
5%
27%
59%
9%
56%
9%
The price of crude as of January 2012 is 15% higher against the same point last year – although after a volatile 2011 prices have stabilised somewhat. What do you expect to happen over the next 12 months?
>25% increase
<25% increase
Remain the same
<25% decrease
>25% decrease
Perc
enta
ge o
f re
spon
dent
s
32 www.roedl.com
Survey findings
Renewable energy has already been established as the future of energy needs and a downfall in
the interest in renewable energy will happen only if oil prices fall significantly, say below US$50 per
barrel. Comparing these results against those of previous surveys, there is now a higher proportion
of uncertain respondents. Compared to just 5% in 2010 and 13% in 2011, this year 40% of
respondents say it is too difficult to predict how low oil prices would need to dip in order to detract
from the appeal of renewable energies.
At the same time, there is another important shift in respondents’ feedback this year: the percentage
of respondents stating that oil prices are not an important factor in determining interest in renewable
sources has increased more than two-fold since last year. This reflects a widely held view that long-
term energy independence outweighs the importance of energy costs at any given moment.
Because of the high commodity prices and further uncertainty on their future prices,
switching to renewable energy is the priority for many countries. Simply put by a
German respondent: “Concern of energy security and environmental issues are
much higher than the concern regarding high commodity prices.”
0
10
20
30
40
50
60
70
80
90
100
201020112012
40%
18%7%
13%
13%
21%
12%
3%
18%
13%
12%
5%
8%
18%
29%
28%
12%
13%
5%
12%
What is the minimum oil price level below which you think interest in renewable energies would fall?
For 76%
Government support
the principal external driver of M&A
Outlook for oil prices is still largely uncertain
<US$50
US$50 - 60
US$61-70
US$71-80
US$81-90
>US$90
Not sure/too difficult to say
Not an important factor
Perc
enta
ge o
f re
spon
dent
s
33www.roedl.com
>5% increase
<5% increase
Remain the same
<5% decrease
>5% decrease
Predictions for electricity prices have not changed considerably since 2010.
This year, about one-third of respondents expect electricity prices to
remain stable whilst remaining respondents are divided between a <5%
increase and a >5% increase. Regardless, most respondents maintain
that electricity prices will not directly impact their business plans or
their existing investments.
0
10
20
30
40
50
60
70
80
90
100
201020112012
36%
25%
36%
8%
26%
40%
25%
32%
32%
34%
2%1% 1%
What do you expect to happen to the price of electricity over the next 12 months?
For 76%
Government support
the principal external driver of M&A
Respondents are divided in their expectations for electricity prices
Perc
enta
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f re
spon
dent
s
34 www.roedl.com
Survey findings
Respondents believe that a guarantee of purchase obligations and clear regulations on transmission
and transport are the two most important ingredients in sustaining grid parity. A US-based private
equity investor believes these two factors allow for revenue visibility and more investor confidence:
“Guaranteed interconnection with the electricity grid solves many problems and ensures regular
revenue with profits.”
Looking at the areas that do not rank as highly on respondents’ lists, respondents have a relatively
neutral stance on power exchange market participation, with 46% describing this as only somewhat
important to grid parity and a noteworthy 13% labelling it as unimportant.
On the topic of transmission and transportation, some respondents state that this is
particularly important among European countries. One Bulgaria-based corporate
respondent says: “Until there is harmonisation among the European players, grid
parity will be difficult to obtain.”
0
10
20
30
40
50
60
70
80
90
100
Power exchange market participation
Grid access with predefined/ concrete capacity
Advancements in energy storage capacity
Clear transmission/transport regulations
Guarantee ofpurchase obligations
36%
39%
6% 9%
41%
38%
12%18%
13%
46%
32%
9%
24%
40%
34%
34%
4%
42%
20%
2% 1%
How important are the following factors in allowing for sustainable project finance at grid parity?
For 76%
Government support
the principal external driver of M&A
Grid parity to depend most on the
guarantee of purchase obligations
Very important
Important
Somewhat important
Somewhat unimportant
Not important at all
Business plans for PV systems in southern Italy are only lucrative if a purchase guarantee for the produced electricity can be secured. The term “grid parity” is thus open to interpretation, as operators of renewable energy plants are still
dependent on preferential treatment, as opposed to operators of conventional energy plants.
Svenja Bartels, Rödl & Partner Padova
Perc
enta
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f re
spon
dent
s
35www.roedl.com
Large-scale PV grid parity appears to be most likely in the near-term for Germany and Italy,
selected by 16% and 10% of respondents, respectively, as potentially seeing grid parity by
2014. Generally speaking, however, 2015 to 2016 will likely be definitive years.
Taken together, more than half of respondents say that Italy, Germany and Spain will all
reach grid parity during this period. One respondent states: “In Italy, Germany and Spain,
generation and transmission technology are well advanced and they have regulated grid
systems for better efficiency.”
Respondents have the most conservative outlook for South Africa, where an aggregate 30%
of respondents predict grid parity between 2017 and 2018. An additional 13% do not expect solar
PV to reach grid parity until after 2018.
While respondents are generally optimistic, there are of course some important obstacles worth
noting. One respondent says: “Eurozone crises spoiled the momentum otherwise grid parity would
have been a reality by 2015.” Another respondent from an alternative energy company focused on
Latin America seconds this in saying: “Ideally, grid parity should have been achieved in solar PV, but
the debacle in the Spanish solar industry and the price war in the PV cells have shaken investor
confidence in European markets.”
It is widely expected by those involved in this segment that 2012 to 2013 will be the period/year of the beginning of grid parity in Spain within the PV subsector. Small, individual house rooftop systems are expected to start cropping up all over the country,
together with larger open-air systems. In general, especially high M&A activities in this (grid parity) area are anticipated.
Christoph Himmelskamp, Rödl & Partner Barcelona
By 2014
By 2015
By 2016
By 2017
By 2018
After 2018
Never
Percentage of respondents
0 20 40 60 80 100
South Africa
Italy
Spain
Germany 16%
5%
10% 39%
23%2% 30% 7% 23% 15%
23% 3% 12% 12% <1%
31% 32% 8% 14% 9%
34% 28% 3% 11% 7% <1%
<1%
In each country, when do you expect large-scale photovoltaic power plants to achieve grid parity?
Percentage of respondents
For 76%
Government support
the principal external driver of M&A
Grid parity by2015 - 2016
36 www.roedl.com
Survey findings
By 2014
By 2015
By 2016
By 2017
By 2018
After 2018
Never
Compared to PV, the outlook for grid parity in the wind subsector is slightly less ambitious. In general,
most respondents expect grid parity to be achieved by 2015 or 2016. Germany and Spain stand
out from the rest, with 39% and 38% of respondents, respectively, expecting these two countries
to achieve grid parity by 2015; approximately one-quarter of respondents say the same for Italy and
Turkey, although in these countries roughly one-third of respondents believe 2016 is more likely.
Another significant theme in respondents’ feedback is the importance of emerging markets.
Countries like China and India are mentioned repeatedly by respondents for their progressive stance
on renewable energy, including an executive from a Japanese energy company who explains: “Wind
power is the fastest growing subsector, and its growth is now being fuelled by developments in Asia.
Asian countries like China and India have developed wind farms that are as efficient as European
wind farms, and highly cost efficient because of the low construction costs.”
European countries have also been progressing toward grid parity.
Despite sovereign debt crises and cuts to government incentives,
respondents are largely optimistic that European countries
in general (and Germany in particular) have made bold
moves toward grid parity, thanks to major advancements in
wind technology and a reduction in turbine costs. “Wind
promises large-scale renewable energy generation and
the development in wind turbines have made them more
efficient, cheaper and practical,” says one respondent.
0 20 40 60 80 100
Turkey
Italy
Spain
Germany 22%
10%
7% 27%
4% 24% 32% 5% 19% 15% 1%
35% 6% 16% 9%
38% 31% 2% 11% 7%
39% 22% 2% 8% 6% 1%
1%
In each country, when do you expect wind to achieve grid parity?
Grid parity is already a reality in Germany: 60% of generated wind capacity is currently directly sold on the market.
Anton Berger, Rödl & Partner Nuremberg
Percentage of respondents
For 76%
Government support
the principal external driver of M&A
Grid parity by2015 - 2016
37www.roedl.com
Increase greatly
Increase
Remain the same
Decrease
Decrease greatly
The outlook for private equity is more optimistic this year than it was last year: compared to 55%
of respondents in the survey of 2011, a substantial 84% of respondents to this year’s survey
expect increased private equity investments in the renewable energy sector.
Respondents’ outlook for solar and PV grid parity in Europe – about three to five years – closely
mirrors the investment horizon for private equity investors. This is reflected in some private equity
respondents’ feedback, which suggests their strategies will take grid parity timeframes into account.
A respondent from a US-based private equity group notes that “wind energy is more matured and
is on track to reach grid parity earlier.” A private equity investor based in Japan says he is monitoring
government developments: “I am expecting the economic reforms to be successful by 2016
in Europe which will bring back the government incentives and grid parity.”
Government incentives are indeed an important factor in determining confidence in the private equity
community. In this respect, a UK-based private equity respondent says: “Increasing incentives from
the government and lower execution timeframes are driving private equity investments in the sector.”
Another example: “Tax incentives like production tax credits are very important as they help in raising
private funds.”
Economic volatility aside, renewable energy has been a safe zone for private equity
investors. One respondent notes that the “recession did not cripple the sector,” while
another states that “the renewable energy sector has given private equity firms much
needed relief with their investments; it’s a sector they can rely on completely to
generate significant returns and strengthen their funds.”
0
10
20
30
40
50
60
70
80
90
100
201020112012
45%
38%
6% 9%
41%
38%
12%10%
3%
30%
61%
6%
14%
66%
18%
34%
4%
42%
20%
1%2%
What do you expect to happen to the level of private equity activity in the renewable energy sector over
the next 12 months?
For 76%
Government support
the principal external driver of M&A
PE activity will gain speed in the next 12
months
Perc
enta
ge o
f re
spon
dent
s
2012 will be a year for further consolidation in the renewable energy sector, in particular in the corresponding Production and Distribution Components sectors, offering
well-positioned private equity players attractive investment opportunities.
Michael Wiehl, Rödl & Partner Nuremberg
38 www.roedl.com
Survey findings
Trade sale
IPO
Secondary buyout
Private equity investors are most likely to exit their investments via trade sales in 2012, according
to 54% of respondents. This marks a gradual change in respondents’ views over the last two
years, as trade sales have become more likely – and IPOs less likely – over this period.
The reasons for this change in attitude can be traced back to major market developments,
particularly in the eurozone and resulting in volatility in the equity markets. “An IPO requires
a multi-step process to achieve liquidity and there are timing uncertainty issues due to exposure
to unpredictable swings in the strength of the equity capital markets,” says a US-based respondent
from a clean technology company. In contrast, selling to strategic acquirers allows for more
certainty: “Trade sales enable liquidity gain through a single-step process and also maximise
value through a competitive auction process.”
Another factor is the rise of secondary financial buyers. One respondent says: “With the entrance of
pension funds and other sovereign wealth funds in the renewable energy sector, secondary buyouts
will pick up.”
0
10
20
30
40
50
60
70
80
90
100
201020112012
41%
38%
21%
9%
41%
38%
12%
31%
32%
37%
38%
8%
54%
34%
4%
42%
20%
How do you expect private equity groups to exit their renewable energy investments over 2012?
For 76%
Government support
the principal external driver of M&A
Trade saleis the primary exit route
for private equity holdings
It is also becoming apparent in 2012 that IPOs represent no viable alternative for the exit of investors. In contrast, exit strategies via trade sales are gaining in importance.
Gerhard Wacker, Rödl & Partner Nuremberg
Perc
enta
ge o
f re
spon
dent
s
39www.roedl.com
For 76%
Government support
the principal external driver of M&A
Outlook forIPO market
largely unclear
Increase greatly
Increase slightly
Remain the same
Decrease slightly
Decrease greatly
For the reasons outlined by respondents above, it comes as little surprise that the outlook for IPOs is
less optimistic than last year. In the next 12 months, just 30% of respondents expect to see an increase
in the volume of IPOs, compared to 47% in total last year. A total of 57% of the respondents think
that the number will remain the same.
It is worth noting, however, that some markets provide a more favourable environment for IPOs
than others. One respondent says: “IPOs gained prominence in Asian markets and have also
seen renewed interest from investors in the US” and another says: “The performance of IPOs has
considerably increased in Asia and energy IPOs have always attracted investors.”
With governments recognising the long-term importance of renewable energy and actively
fostering its development, investors are warming up to the sector and respondents are expecting
the markets to respond positively to new listings. As a Brazilian respondent puts it in the simplest
terms: “Every country has a significant reason to develop their renewable energy. Some want energy
security, to be independent in their energy needs. Others fear poor climate conditions and want to
reduce harmful greenhouse effects, while others want to achieve economic growth by developing
infrastructure and attracting investment. Together, these motives are bringing the renewable energy
sector to new highs and M&A activity will surge to new levels.”
0
10
20
30
40
50
60
70
80
90
100
201020112012
40%
38%
9%
10%9%
41%
38%
12%
9%
46%
41%
3%
13%
57%
30%
34%
4%
42%
20%
3% 1%
What do you expect to happen to the number of IPOs in the renewable energy sector over the next 12 months?
Perc
enta
ge o
f re
spon
dent
s
40 www.roedl.com
41www.roedl.com
Renewable energy-focused corporate
Renewable energy-focused private equity practitioner
Renewable energy-focused financial adviser
0 10 20 30 40 50
Africa
Middle East
Central &South America
Asia-Pacific
North America
Europe 46%
45%
39%
16%
4%
3%
In which region(s) do you operate?
Respondent breakdown
60%
20%
20%
Respondent information
Percentage of respondents
42 www.roedl.com
Respondent information
1 – 2
3 – 4
5 – 6
7
Very successful
Successful
Neutral
Not successful
Not successful at all
71%
22%
6% 1%
How many renewable energy M&A transactions have you been involved in over the past 12 months?
0
20
40
60
80
100
201020112012
20%
67%
13%
29%
1%
16%
65%
18%
48%
23%
How would you rate the outcome of the transaction?
Perc
enta
ge o
f re
spon
dent
s
43www.roedl.com
44 www.roedl. com
Historical data
Volume
Value €m
0
10
20
30
40
50
60
70
80
Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
2008 2009 2010 2011 2012
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Global renewable energy M&A trendsN
umbe
r of
Dea
ls Deal Value €m
Not disclosed
< €15m
€15m - €100m
€101m - €250m
€251m - €500m
> €500m
M&A volume split by subsector
0
10
20
30
40
50
60
70
80
Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1
5
22
9 11 1316 16
12
25 24 18 17 1928
19 2111
45
145
4
12
5
4
16
11
5
16
10
35
7
8
45
6
21
5
14
3
12
19
9
7
11
7
14
17
9
4
14
17
43
9
14
8
4
8
53
5
15
4
9
11
83
10
27
9
5
11
5
10
11
11
11 1
1
2
2 2
2
2 2
3
2
3
1 2
22
2008 2009 2010 2011 2012
Num
ber
of D
eals
45www.roedl.com
M&A volume split by subsector
0
50
100
150
200
250
2012YTD2011201020092008
22
36
60
20
31 36 38 28
4
31013
21
61
85
13
23
59
69
15
30
51
59
167
72 2
3
Num
ber
of D
eals
Biomass
Hydroelectric
Solar
Wind
Mixed Renewables
Geothermal
Biomass
Hydroelectric
Solar
Wind
Mixed Renewables
Geothermal
M&A value split by subsector
0
5000
10000
15000
20000
25000
30000
35000
2012YTD2011201020092008
8961,9151,381
5,980
6,552
1,747 1,5752,887 6,797
3,903
8,077
5,014
3,0291,77817,411
3,106
4,953
3,904
528
1,227 1,200
98
3423,254
2,806
155
8
395
Valu
e €m
46 www.roedl.com
Historical data
Subsector share of total value
32%
27%
16%
20%
5%
28%
15%
27%
17%
12%1%
Wind
Hydroelectric
Solar
Mixed Renewables
Biomass
Geothermal
Subsector share of total volume
41%
10%
29%
6%
14%1%
34%
11%29%
7%
19%
1%
2011Total Vol = 210
2010Total Vol = 206
2011Total Vol = €25bn
2010Total Vol = €10.7bn
Wind
Hydroelectric
Solar
Mixed Renewables
Biomass
Geothermal
47www.roedl.com
Asia-Pacific
Central & South America
Europe
Middle East & Africa
North America
Asia-Pacific
Central & South America
Europe
Middle East & Africa
North America
M&A deal volume split by region
0
50
100
150
200
250
2012 YTD2011201020092008
16
94
436
26 35
8
27 29
4320
13
142
125
16
124
435
100
3
54
6
Num
ber
of D
eals
0
5000
10000
15000
20000
25000
30000
35000
2012 YTD2011201020092008
398
13,136
2,009
1,500
14,951
1,2321,492
1,4073,797
1,288
2,1932,134
16,455
4,200
5,425
2,473
9,167
6,554
209 524
320
29
M&A deal value split by region
Dea
l Val
ue €
m
48 www.roedl. com
Historical data
Spain
Russia
US
Brazil
Canada
Italy
France
Denmark
China
Other
Germany
Spain
US
Italy
United Kingdom
China
Brazil
France
Canada
Other
Top 10 target countries by value
26%
15%
7%8%
10%
5%
7%
5%
3%
14%18%
17%
11%
6%11%
1%1%
4%
31%
2011 2010
Top 10 target countries by volume
12%
13%
9%
8%
8%5%5%
5%
3%
32%
11%
10%
12%
11%
6%8%6%
4%
5%
29%
2011 2010
49www.roedl.com
Germany
Nuremberg - Head officeAnton Berger
+ 49 (911) 91 93 36 01
MunichOliver Schmitt
+ 49 (89) 92 87 80 311
AfricaUlrike Brückner
+ 49 (30) 20 60 68 60
Baltic StatesJens-Christian Pastille
+ 371 (67) 33 81 25
BrazilDirk Beuth
+ 55 (11) 50 94 60 63
BulgariaMinko Karatchomakov
+ 359 (8 85) 57 17 65
Czech RepublicHans-Ulrich Theobald
+ 420 (2) 36 16 37 30
FranceIsabelle de Barstch
+ 33 (1) 42 89 12 40
GreeceAlexandra Giering
+ 49 (911) 91 93 30 08
HungaryStefan Sieferer
+ 36 (1) 81 49 880
IndiaJan Eberhardt
+ 91 (22) 42 33 18 18
Italy – MilanStefan Brandes
+ 39 (02) 63 28 841
Italy – PadovaSvenja Bartels
+ 39 (0 49) 80 46 911
Italy – RomeRoberto Pera
+ 39 (06) 96 70 12 70
PolandAneta Majchrowicz-Baczyk
+ 48 (22) 69 62 800
PR ChinaAlexander Fischer
+ 86 (21) 61 63 53 48
RomaniaBogdan Fratila
+ 40 (21) 31 02 162
SingaporePaul Weingarten
+ 65 62 38 67 70
SlovakiaMaros Tóth
+ 421 (2) 57 20 04 11
South AfricaDieter Sommer
+ 27 (11) 47 93 000
Spain – BarcelonaChristoph Himmelskamp
+ 34 (93) 23 89 370
Spain – MadridGeorg Abegg
+ 34 (91) 53 59 977
ThailandMartin Klose
+ 66 (2) 67 00 670
TurkeyMetin Sagmanli
+ 90 (212) 31 01 400
UkraineKlaus Kessler
+ 380 (44) 58 62 303
USUllrich Kämmerer
+ 1 (404) 58 63 502
VietnamSebastian Pawlita
+ 84 (8) 38 24 42 25
Rödl & Partner Contacts
Rödl & Partner is active at 87 wholly-owned locations in 39 countries. The integrated fi rm for audit, legal, management and tax consulting owes its dynamic success to over three thousand entrepreneurial colleagues.
In close collaboration with our clients we develop information for well-founded economic, tax, legal and IT decisions that we implement together – both nationally and internationally.
> 87 offi ces > 39 countries > one fi rm www.roedl.com
Success without borders!We advise businesses worldwide.
„Each and every person counts“ – to the Castellers and to us.
Human towers symbolise in a unique way the Rödl & Partner corporate culture. They personify our philosophy of solidarity, balance, courage and team spirit. They stand for the growth that is based on own resources, the growth which has made Rödl & Partner the company we are today.
„Força, Equilibri, Valor i Seny“ (strength, equilibrium, valour and common sense) is the Catalan motto of all Castellers, describing their fundamental values very accurately. It is to our liking and also reflects our mentality. Therefore Rödl & Partner embarked on a collaborative journey with the representatives of this long-standing tradition of human towers – Castellers de Barcelona – in May 2011. The association from Barcelona stands, among many other things, for this intangible cultural heritage.
Rödl Equity Partner Beteiligung GmbH & Co. KG
Äußere Sulzbacher Str. 100
90491 Nürnberg
Tel.: + 49 (9 11) 91 93 – 0
Fax: + 49 (9 11) 91 93 – 19 00
E-Mail: [email protected]
www.roedl.com
„Each and every person counts“ – to the Castellers and to us.
Human towers symbolise in a unique way the Rödl & Partner corporate culture. They personify our philosophy of solidarity, balance, courage and team spirit. They stand for the growth that is based on own resources, the growth which has made Rödl & Partner the company we are today.
„Força, Equilibri, Valor i Seny“ (strength, equilibrium, valour and common sense) is the Catalan motto of all Castellers, describing their fundamental values very accurately. It is to our liking and also reflects our mentality. Therefore Rödl & Partner embarked on a collaborative journey with the representatives of this long-standing tradition of human towers – Castellers de Barcelona – in May 2011. The association from Barcelona stands, among many other things, for this intangible cultural heritage.
Rödl Equity Partner Beteiligung GmbH & Co. KG
Äußere Sulzbacher Str. 100
90491 Nürnberg
Tel.: + 49 (9 11) 91 93 – 0
Fax: + 49 (9 11) 91 93 – 19 00
E-Mail: [email protected]
www.roedl.com
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