Power and utility deal activity is down significantly to start 2020, but renewables show strength


Ernst & Young (EY) has released a report detailing transactions in power and utilities (P&U) for the first half of 2020, which shows that despite a significant decline in deal volume and overall value associated with the pandemic, investment in renewables remains strong.

In the Americas as a whole, P&U deal activity region sputtered significantly in the first half of 2020, with $8.3 billion in total investment over the course of 62 deals. Deal volume declined sharply in Q2 2020 to 15 deals, a 68% decline from Q1 2020. Of those $8.3 billion in investment, $3.5 billion, or roughly 42% of the total deal value, came from investment in renewable energy.

This is significant because, as EY strategy and transactions partner, Miles Huq, told pv magazine, individual deals in renewable energy are typically lower in value, so to have these deals drive so much total value shows continued investor confidence, even in the face of an unprecedented disruption.

“Renewable energy is continuing to attract interest, we’ve seen that in the first half of 2020,” Huq told pv magazine. We’ve seen many stakeholders seeking to move away from fossil fuels. This push for renewables is driving investment, not only from financial sponsors, but from corporate investors, as well as oil and gas companies. The renewable transactions are smaller in size, so that would be another reason you see the drop-off in deal size.”

Storage on the rise

As for the United States, specifically, U.S. in investments totaled $968 million in H1, reaffirming the country as the top investment hotspot in Americas, as well globally.

And, as if our past month of coverage wasn’t foreshadowing enough, most U.S. investments were made in battery storage $357 million, followed by electric transportation $132 million. The report predicts energy storage capacity deployed in the U.S. annually to more than double in 2020, rising from 523 MW deployed in 2019 to 1,452 MW in 2020, before tripling to 3,646 MW in 2021.

As for some of the factors driving this rapid adoption, they come at both the federal and state levels. Federally, the DOE announced ‘The Energy Storage Grand Challenge’ aimed at making the U.S. a global leader in storage with domestic manufacturing supply by 2030, while a federal appeals court upheld the Federal Energy Regulatory Commission’s Order 841, which clears the way for transmission grid operators to open their markets to energy storage developers and aggregators, where action was historically dictated by request for proposal activity.

Huq also shared that the decline in deal value and volume experienced in the first half can be partially attributed to 2020 being an election year, as elections bring their own investing uncertainty.

“Another perfect example is tax rate,” Huq said. What is the outcome of the election and how is that going to impact corporate tax rates, which have come down? If we have a turnover in the presidency and in the Senate, is there a likelihood that tax rate goes up? That’s important element because that’s after-tax cash flow that determines evaluation. That’s an important element that has led to a softening in the market.”

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