The move towards greener sources of energy has gained momentum, driven by environmental necessity, coupled with a recovery in the economy in the last quarter of 2009. This resulted in the announcement and completion of major deals of high deal value in 2009.
The number of deals however witnessed a marginal decrease from 3,494 deals in 2008 to 3,122 deals in 2009.
GlobalData expects that the market will improve further as industry players egin to seek opportunities for consolidation, and many companies are looking to larger potential economies like China and India in light of the expected economic recovery boost. Going forward, the ease of financing and government grants will also uplift the alternative energy industry.
Mergers & Acquisitions increased in 2009
M&A activity increased in the alternative energy market, reporting US$86 billion in 2009 compared to US$60.8 billion in 2008, an increase of 41%.
This can primarily be attributed to some big ticket deals in Q1 2009 and Q4 2009:
- Enel's acquisition of a 25% interest in Endesa for US$12.2 billion;
- RWE's acquisition of Essent for US$9.8 billion;
- Vattenfall’s acquisition of a 49% interest in Nuon for US$6.2 billion;
- Alstom and Schneider's proposed acquisition of Areva T&D for US$5.8 billion; and
- Panasonic's acquisition of a 50.2% stake in Sanyo Electric for US$4.5 billion.
Technology wise, M&A activity in the wind segment witnessed a promising increase, reporting investments of US$41 billion from 100 deals in 2009, compared to US$30 billion from 149 deals in 2008.
Companies with strong balance sheets and institutional investors’ boosted confidence has led to a continual increase in investments in the wind segment, as investors have been less willing to expose themselves to unpredictable fuel and carbon prices. However, the number of deals decreased from 567 deals in 2008 to 380 deals in 2009, due to a majority of the medium size companies being cautious in the capital intensive market.
According to Pavan Vyakaranam, analyst at GlobalData, “the increase in investment value is mainly due to the improving market conditions and growing investor confidence in the longevity of alternative energy sources. Markets will continue to improve and the alternative energy industry is expected to see increased M&A activity in the coming year.”
Increased asset financing In 2009
Asset financing, including project financing, self funded, tax equity, lease and bond financing and bridge loans for new building projects, acquisitions, and the refinancing of assets, saw a huge growth, registering a compound annual growth rate (CAGR) of 77.1% from 2005 to 2009.
The industry reaped US$327.8 billion of funds in asset financing in 2009, an increase from US$33.3 billion in 2005. On a year-on-year basis, the market registered an increase of 13% in terms of the number of deals and 81% in terms of deal value, reporting 1,497 deals worth US$327.8 billion in 2009, compared to 1,323 deals worth US$181.3 billion in 2008, driven by increasing global demand for alternative energy sources.
The wind energy segment dominated the asset financing market, with around 46% of total new investments in wind energy projects in 2009. This can be primarily attributed to the decreased risk exposure in the wind energy segment, compared to other alternative energy sources.
Some of the major deals in 2009 were the Gansu Provincial People's Government’s investment of US$17.6 billion in the Jiuquan wind power project in China; and Svevind and Enercon’s investment of US$6.6 billion in the Markbygden wind farm located in Sweden.
In particular, self-funded projects, which include projects that have been financed through the company’s own balance sheet either through cash or stocks, witnessed an increase in the number of deals and deal value in 2009. The market reported 721 deals worth US$245 billion in 2009, compared to 644 deals worth US$132.3 billion in 2008, an increase of around 85% in terms of deal value.
The wind energy segment marked a significant presence with a total of US$119.9 billion of self-funding towards projects in 2009. Further, the majority of companies in the Asia-Pacific focused on investing in alternative energy projects, reporting US$93.8 billion of investments in 2009, representing 38% of total self-funding investments in 2009.
According to Vyakaranam, “Asset financing will continue to be on a rising trend, driven by environmental necessity, coupled with the declaration of a new budget in Q2 2010. The sector is poised to see an uptrend as the clouds of the economic downturn will wither out soon.”
Increased financing through debt offerings in 2009
Debt offerings, including public offerings and private debt placements, witnessed a gradual increase in the deal value since 2005. On a year-on-year basis, the market reported 490 deals worth US$200.7 billion in 2009, compared to 416 deals worth US$119.2 billion in 2008.
This signifies the companies’ continued positive outlook and confidence in the debt market. Debt offering in the alternative energy market witnessed a CAGR of 44.9% in investments from 2005 to 2009.
Global equity offerings, including initial public offerings, secondary offerings, and private investment in public equities (PIPE), witnessed an increase, reporting US$58.3 billion of equity fund raising in 2009, compared to US$47.3 billion in 2008. This can primarily be attributed to the promising market for alternative energy in the future and the positive market recovery signs in the fourth quarter of 2009, which will certainly lead to flourishing investments in the near future.
PIPE deals garnered large chunk of deals, reporting 177 deals worth US$30.7 billion in 2009. The wind energy segment topped the list in the equity raising table, with 102 deals worth US$24.7 billion in 2009.
Venture capital investments decreased by 60% in 2009
Venture capital (VC) investments in the alternative energy industry declined by around 60% in 2009, reporting US$2.8 billion in 2009, compared to US$7.1 billion in 2008, showing that venture capitalists are taking time to explore the investment opportunities in the alternative energy market.
The decrease in investments can primarily be attributed to the global credit freeze that made VC companies more and more cautious on investments in new start up companies. Solar companies accumulated the majority of the VC funding with US$1.2 billion in 2009, followed by the biopower and energy efficiency segments with US$477 million and US$464 million respectively. On a year-on-year basis, growth capital and expansion financing dominated the market, reporting 74 deals worth US$1.9 billion in 2009.
Khosla Ventures emerged as the top VC firm by providing financing worth US$140.8 million for 8 alternative energy companies during 2009.
According to Vyakaranam, “the plunge in venture capital financing in 2009 is mainly due to the cautious approach of investors towards large scale projects. Venture capitalists have embraced a wait and see approach in expectation of better policy initiatives from the respective federal governments in the coming quarter. The emergence of new hotspots and increased government support for the alternative energy sector is expected to attract more venture capital investments in the coming years.”
Investments soared in the Asia Pacific market By 172% in 2009
Alternative energy investments in the Asia-Pacific market soared, reporting US$161.8 billion in 2009 compared to US$59.5 billion in 2008, representing an increase of 172%.
This can primarily be attributed to the long term positive outlook of companies towards the most promising emerging economies like China and India, which are poised with a huge growth opportunity in the near future. Further, the focus on scaling up Chinese generation capacity to meet demand has been identified as one of the ways to bring down its emissions as a proportion of GDP.
Further, investment in the European market also soared by 63%, reporting US$254 billion in 2009, compared to US$155.5 billion in 2008. This can primarily be attributed to the growing investors’ interest in the promising wind sector, which kept the alternative energy sector buoyant though the liquidity squeeze.
The European wind energy market is less reliant on bank project financing, due to an increasing share of new installations financed by institutional investors and infrastructure funds, and from power company balance sheets. In addition, North America reported an increase of around 19%, reporting US$215 billion in 2009, compared to US$181 billion in 2008.
GlobalData is an industry analysis specialist company providing business information products and services. This article is a snapshot taken from GlobalData's regular Alternative Energy Deals Analysis tracker report.