Utilities are investing in renewables more than ever before to improve their ESG profiles

Ernst & Young (EY) has released a report detailing transactions in power and utilities (P&U) for all of 2021, with data showing that increased utility interest in their environmental, social, and governance (ESG) profiles has led to an unprecedented appetite for renewable assets and other environmental and sustainability initiatives.

Specifically, the report outlines initiatives taken by seven of the US’s largest investor-owned utilities, including Duke Energy’s announced plans to double its portfolio of solar, wind and biomass generation by 2025; Dominion Energy’s $48 million in contributions to charitable and community causes, including a $2.5 million gift to the International African American Museum in Charleston, South Carolina; and Xcel Energy’s 2030 Clean Energy Plan, which encompasses reductions in CO2 emission to 85% from 2005 levels by 2030.

This trend of a higher focus on ESG initiatives and renewable deals began its ramp up in the first half of 2020. EY strategy and transactions partner, Miles Huq, in previous conversations with pv magazine, said individual deals in renewable energy are typically lower in value, so the total value driven by these transactions shows continued investor confidence.

Overall, the Americas witnessed a total of 193 P&U deals in 2021, with a total deal value of US$72.9 billion, a strong 74% increase over 2020. Of these 193 deals, half of all volume (96 deals) were strictly in the renewables space, though those deals accounted for just $14 billion, while a lower volume deals in the integrated utility segment represented the majority of deal value.

In the integrated utility space, 2021 saw a rising trend of global and US-based utilities acquiring each others’ regulated business arms. For example, Algonquin Power & Utilities completed a multibillion-dollar deal for AEP’s regulated businesses, including Kentucky Power regulated utility and AEP Kentucky Transmission. In Q1, PPL Corporation sold off its UK business to National Grid for $19.8 billion and acquired The Narragansett Electric Company in exchange.

When complete company transaction deals weren’t on the table, minority stake sales were, and $10 billion was raised by US utilities selling minority stakes in their regulated subsidiaries in 2021.

In Q4, FirstEnergy raised $2.4 billion by selling a 19.9% minority stake in FirstEnergy Transmission. In Q1, Duke Energy raised $2 billion for a 20% minority stake sale in Duke Energy Indiana. Sempra Energy raised a total of roughly $5 billion through a 30% stake sale in Sempra’s new business platform to ADIA and KKR.

Energy services also became an attractive platform for investors, with the Americas bearing witness to 13 deals in the that segment, totaling $14.7 billion, an increase of a $11 billion in deal activity over 2020. The largest among these deals was Sweden-based private equity firm EQT Partners acquiring Covanta Holding Corporation, which is engaged in converting waste into energy, for $5.2 billion. The second largest deal came from IFM Investors and Ontario Teachers Pension Plan acquiring Enwave Energy Corp., a Canadian district energy service provider, while other investors focused their appetites on acquiring hydrogen fuel cells, artificial intelligence for solar energy technology, grid software, EV charging and battery storage.