The renewable energy industry is one of considerable expansion. Global efforts to cut back on the use of non-renewable energy and to reduce carbon emissions are proven to stimulate investment and growth.As the world’s energy needs continue to change, the opportunities for mergers and acquisitions continue to evolve. And as the big technology companies get involved in renewable investments, major oil and gas companies follow their lead.
M&A activity in renewable energy is driven by traditional energy businesses striving to acquire new capabilities, institutional investors seeking stable returns, public demands to address climate change, and countries working to integrate cleaner energies into their existing energy mix. The European Union expects to achieve 32% of renewable energy consumption by 2030.
Established, traditional power companies must rely on M&A to fill gaps in capabilities because they do not possess needed skills that were never part of the mix in traditional grid-based power systems.
Once viewed as a luxury form of energy only used in developed countries, renewable energy is now being adopted worldwide and in many developing countries, such as those in Africa and Latin America. Fossil fuel energy can be costly and difficult to transport and distribute in remote areas, making locally sourced renewable energy a practical option.
There are also other areas of continued development in the realm of renewable energy that offer M&A opportunities for investment and growth. These include the further development of electric vehicles, the electricity storage market—particularly battery technology—extending from technology manufacturers into the mineral supply chain and storage control systems. Digitization of the sector also presents the types of abundant opportunities that are inherent to technology and data in the 21stcentury.
Business Valuation As a Factor
Among the deal-specific factors that influence the valuation of individual renewable assets are:
- Asset quality
- Finance costs
- Regulatory stability
- The state of the wholesale energy market
- The competitive environment
- The lifecycle stage of the asset relative to the prevailing subsidy regime
- Curtailment risks beyond the control of the asset owner
Many governments offer incentives and subsidies for renewable energy production and use, strengthening the value of companies of this sector.
Key Due Diligence Areas
In the acquisition of a renewable power project, the following due diligence topics must be considered:
- The venture must have an energy generation license (or exemption from a license) and adhere to the terms of the license. It is also important to know if there has ever been a breach of the license.
- There must be assessment ofthe project’s profitability and any credit support requirements.
- It must be determined whether there will be any government subsidies for the project, which can affect its funding.
- Property rights and planning permissions must be documented, ensuring that the correct leases, easements, planning permissions, and consents are in place and compliant.
The following key contracts are specific to the renewable energy sector and will be needed:
- A shareholders’ agreement or joint venture agreement
- Power purchase agreement
- CFD or capacity agreement
- Fuel supply agreement (in the case of biomass or biofuel generating plant technologies)
- Engineering, procurement and construction contract
- Operation and maintenance (O&M) agreement
- Connection agreement
- Financing documents
Because completing an M&A transaction in the renewable energy industry is extraordinarily nuanced and complicated, and embroiled in tedious due diligence processes and paperwork, it is highly advised that you seek the expertise of an M&A advisory firm before attempting to broker a deal.
If you are considering selling your company, or even looking to plan an exit for your retirement, please call our M&A experts at Benchmark International to see how we can help you formulate a winning strategy. We are eager to get to work.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkCorporate.com
Europe: Carl Settle at +44 (0) 161 359 4400 / Settle@BenchmarkCorporate.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkCorporate.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 12 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.