Why Largescale Renewable M&A is Dominated by Wind Power

While solar dominates renewable M&A in terms of numbers, wind rules when it comes to largescale deals. That is one of the trends found when looking at data on renewable energy deals in the BDO M&A database.

The graph above maps all renewable energy deals relating to solar and wind power between January 2007 and August 2017. There were a total of 1313 deals related to wind power and 1272 related to solar. Between the beginning of 2015 and August 2017, there have been 610 deals related to solar and 489 related to wind power.

Narrowing the focus to deals worth more than €100 million shows a different image. There were 801 such deals during the same period. Of those, 350 relate to wind power, while 231 relate to solar.

Corporations help drive wind

One of the reasons that wind power deals are dominating largescale renewable M&A is its economy of scale.

Compared to wind, solar energy generally follows a linear growth curve. The equipment used, i.e. solar panels, comparatively speaking maintain the same efficiency, no matter their size. Two solar panels next to each other generate around twice the amount of power. Windmills, on the other hand, generally become more efficient the larger they get. In simplified terms, one large windmill is much more efficient than two windmills half its size.

This means that when windmills are involved, we are often talking about big construction projects, and companies in the subindustry tend towards large. This trend has been given a secondary boost by the kind of clients that wind power projects attract. A recent AWEA report shows how large corporate companies with ambitious renewables targets are buying a lot of wind power.

 “Every time Americans use the Internet or do laundry, it’s more likely that wind energy made it possible […] Innovation has driven down the price, resulting in phenomenal growth in demand for wind energy from corporate buyers, in large part because it saves them money. Signing a long-term wind contract provides these buyers with a package of benefits—low-cost, fixed-price, clean energy—that’s easy to say "yes" to,” Tom Kiernan, CEO of AWEA, explained.

These companies are looking for a lot of power, meaning that you need large projects to deliver. Consider that corporate and emerging buyers have been signing contracts for more than 4,500 MW of wind power capacity. That is roughly enough to power 1.2 million American homes.

This all has an effect on the size of mergers and acquisitions involving companies within the wind power industry, and is part of why wind power dominates largescale M&A.

Asian activity ramps up

A closer look at the most active markets for largescale M&A (+€100 million) in the sector illustrates how Asia, led by China and India, are seeing increased deal activity. While still some distance behind the most active market, USA, both countries have seen a marked increase in activity levels over the last few years. Chinese activity shot up from 4 deals in 2013 to 14, 16 and 15 deals in the following three years. During the same four-year period, India has seen 1, 3, 4 and 8 deals.

While India and China are definitely in the driver’s seat, the rising activity level is a general trend when looking across all asian counties.

Part of the reason for the increased deal numbers is that both India and China have set ambitious targets for renewables. Other factors are also in play here, though. For example the fact that many residents in Asian countries live in high-population-density areas with poor energy grid infrastructure. Renewable energy sources often negate the need for constructing / improving such high-cost infrastructure. At the same time, many Asian countries’ climate is excellently suited for renewable energy production. All reasons why I expect to see the increase in largescale renewable energy M&A continue throughout the continent in coming years.

Megadeals shows usual suspects

China’s rise to prominence also shows up when looking at megadeals (deals with more than $1 billion). Apart from China, the list is generally ´populated by ‘the usual suspects’ in the form of countries from North America and Europe, joined by Australia. A quick note on the latter is that Australia is seems to be having a break-out year in regard to solar energy deals. A fact that could well lead to more megadeals in the near future.

Finally, I think that it is important to underline that the data and countries that I have focused on here are by no means the only places where renewable energy M&A is a hot topic To help illustrate how active and dispersed largescale M&A in renewabel energy is, I have mapped all deals worth more than €100 million since 2007. If you take a look around the map below, I am pretty certain that you will find a deal somehwere near where you work and/or live – no matter where in the world you are.