Dive Brief:
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Utility sector merger and acquisition activity is booming, with regulated utilities and renewable generation assets attracting the most investment, according to a report from research and consulting firm Ernst & Young.
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The global value of utility M&A deals hit $43.5 billion in the second quarter, a 105% increase over the same period in 2015, the report found.
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Competition for regulated network assets is pushing valuations to record levels, but smaller transactions for disruptive technologies, such as microgrids and battery storage, are growing quickly as utilities shift investments toward creating the “utility of the future,” the authors wrote.
Dive Insight:
The strong performance of utility M&A continued into the second quarter of 2016. According to a report earlier this year, the first quarter saw a 508% increase in year-over-year deal value.
According to a new report from EY, M&A deal value in the second quarter was down slightly from the first quarter, but deal volume grew 33% over the same period in 2015 and 10% over first quarter 2016. Most of the deals (52.3%) involved either renewable or regulated assets that had a cumulative worth of $13 billion.
The most active region for deals was the Americas, which accounted for $24.7 billion of the total, and was driven by pressure from environmental regulations and low energy prices, mostly as a result of cheap natural gas.
Europe saw a 44% increase in deal value from second quarter 2015, to $8.2 billion. Britain’s decision to exit the European Union could have an effect on M&A activity in the region, but the full effect will not be clear until Britain’s new energy policies take shape, EY analysts said.
One of the drivers of utility M&A activity is the global volatility of the power sector, as investors continue to seek the safety of contracted renewable energy assets and regulated distribution networks, according to the EY report.
Earlier this month NextEra Energy launched a bid for Oncor Electric Delivery. And in July Exelon announced plans to acquire Consolidated Edison’s retail electricity and natural gas business.
But behind the big ticket investments, there is a growing trend of utilities investing in disruptive technologies.
“The trend toward investment in disruptive technologies is also gathering pace,” Matt Rennie, EY global power and utilities transactions leader, said in a statement. “Both utilities and non-traditional investors are shifting their focus to areas like distributed energy and battery storage. And, as consumer demand increases, more M&A will follow.”
In May, French oil and gas company Total made a $1 billion offer for battery company Saft. And earlier this year, Southern Company announced the acquisition of distributed energy company PowerSecure International.