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UK could be a renewable energy goldmine

The UK could be sitting on a renewable energy goldmine if the Government gets the Electricity Market Reform right, according to KPMG.

By Renewable Energy Focus staff

However, to attract investment, KMPG says “absolute clarity and consistency of the UK Government’s energy policy is needed urgently.”

In its Green Power 2011 annual survey of global renewable energy mergers and acquisitions (M&As), KPMG found that 75% of respondents would have invested more in the UK over the last three years if regulation and legislation had been clearer and more consistent.

Andy Cox, Energy Partner at KPMG in the UK, says: “Just a third of all survey respondents indicated an intention to invest in the country this year, falling to less than a quarter of those respondents from North America. Yet the UK should be one of the leading renewable energy markets in the world, given its abundant wind, wave and tidal resources, its track record of technological innovation and its strong financial centre in the City of London.

“Whilst the outcome of the Electricity Market Reform should ultimately be beneficial to the renewable energy sector, there is now a real risk of an investment hiatus as investors and corporate await the White Paper and its implementation which is, in turn, causing genuine concern that the UK will not meet its EU 2020 emissions targets. With three quarters of dealmakers willing to invest more capital in the UK with the right market mechanisms and structures in place, there is a clear opportunity for the Coalition Government to secure the UK’s position as a world leader in renewable and offshore technology, and therefore, as a top destination for investment.”

M&As up 70%

In 2010, the number of M&As jumped 70% to 446 closed deals compared to 2009, and the market is not yet showing signs of slowing with first quarter deals in 2011 doubling to 141, totalling US$11.2bn, compared to Q1 in 2010.

Cox says: “The renewable M&A market has had a busy start to 2011, with a substantial jump in global activity which looks set to continue. In particular, our survey has shown that deals in the US$50-500 million bracket are likely to se the greatest increase whilst, overall, higher competition for targets is expected to push up global valuations driven by better financing conditions, a post-Fukushima reinvigoration of sentiment and soaring oil prices as well as some new acquirers, including Asian manufacturers and potentially pension funds.”

Incentives all important

Most of the respondents planning to invest in major Western European renewable energy markets say incentives are the primary motivation over any other factor.

“Our survey confirms the importance of incentive regimes to investors in Western Europe,” Cox says. “The acceleration of cuts to feed-in tariffs for new projects across Western Europe over the last year is driving growing competition for existing projects with attractive guaranteed feed-in tariffs at higher historic levels and providing a temporary boost to deal activity and acquisition multiples in Europe. As already evident in the UK, without further stimulus the level of M&A activity, in solar photovoltaic assets in particular, can be expected to significantly decline once operational projects with attractive feed-in tariffs have long term owners.”

Asia and North America lead

The KMPG survey found that 78% expect the global renewable energy market to be driven by investors from China and 59% expect new acquirers from North America to drive the market.

Over double the number of Asian respondents intend to invest in China and India than those intending to invest in Europe, and the same goes for North American investors, who favour North American markets.

Cox comments: “At a time when debt-laden European countries are facing government stimulus being reined back or curtailed, these findings confirm that European countries will not be able to rely on trans-continental investment to plug their domestic renewable energy funding gaps without additional steps such as EMR in the UK. Providing clarity, credibility and stable government policy in the near term will be key.”

The Fukushima-effect

“Having prompted many nations to begin a re-evaluation of their position on nuclear power, there has already been an increase in investors’ appetite for renewable energy assets, reflected in a dramatic rise in global renewable energy stock prices post-Fukushima,” Cox says.

“While the comparative costs of delivering clean energy mean that nuclear will underpin future generation (particularly in the UK), our survey has shown that dealmakers expected an increase in M&A activity in the sector this year even before the events in Japan. Following Germany’s decision to take 7 of its oldest nuclear plants offline, China’s reduction in its 2020 nuclear capacity target and potential delays to programs in other countries, investors will no doubt be reassessing the additional opportunities created for the renewable sector.”

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