Renewable Energy Mergers and Acquisitions Grow To An Average Of $425 Million Per Deal

Renewable Energy Mergers and Acquisitions Grow To An Average Of $425 Million Per Deal Marking A New Shift In The Booming Sector

The renewable energy sector has recently witnessed a surge in mergers and acquisitions (M&A). FirstLight, a prominent clean power producer and energy storage company in Australia, recently finalised the acquisition of Hydromega Services Inc., a move that will underscore the company's commitment to decarbonisation. 

The acquisition will expand FirstLight’s footprint in the clean energy sector by adding ownership interests in 10 hydropower generating stations in Québec and Northeastern Ontario, along with Hydroméga’s extensive clean energy development pipeline.

Effectively, the acquisition will double FirstLight’s total development pipeline to over 4 GW across the US and Canada, with over 200 MW in Québec and Ontario, positioning the company as a critical player in the transition to renewable energy. 

Commenting on the matter, Justin Trudell, FirstLight's President and CEO, expressed enthusiasm about the acquisition, highlighting the combined expertise of the teams and the addition of significant development capabilities and operational assets to FirstLight’s existing portfolio.

The acquisition highlights a growing trend in the industry as companies race to become front runners in decarbonisation efforts. Europe has experienced the highest deal activity globally, accounting for approximately 40% of acquisitions involving Europe-based targets. Globally, as of  2022, more than 175 acquisitions had been announced, excluding asset transactions. 

The increase in the number of acquisitions led to a steep increase in the total value of deals, with the average amount growing from around $150 million in 2018 to approximately $425 million in 2022. 

Most of the acquisitions have led to a significant change in the sector’s landscape. For instance, in the UK, in January 2020, Ovo Energy acquired the local arm of SSE for £500 million. The deal, which was announced in September 2019, resulted in Ovo becoming the second-largest energy firm in the UK. 

This acquisition significantly impacted Ovo Energy’s financial position. The company announced its revenue had increased from £1.4 billion to £4.5 billion, while its adjusted EBITDA grew to £97 million in 2020, immediately after completing the acquisition. Besides, the company’s operating profit also rose significantly, growing from a £103 million loss in 2019 to a £7 million loss in 2020. 

Besides Ovo Energy’s acquisitions, several other acquisitions have shaken the renewable sector. In October 2022, Germany’s largest power producer, RWE, agreed with Con Edison to acquire its clean energy business for a staggering $6.8 billion. The deal's completion was expected to increase the share of solar energy to 40% from 3%, nearly doubling RWE's renewables portfolio and pushing the company to the fourth largest renewable energy player in the US. 

The growing number of companies going the mergers and acqusitions route is informed by several factors. For some players, opting for mergers and acquisitions provides an easy path to expand their capacity, especially in regions where they lack presence. It offers an easy option for scaling up quickly to meet renewable energy targets.

The renewable energy market has also become very competitive, with stakeholders ranging from independent developers to utilities, financial institutions, and oil and gas majors all vying for a share of the market. M&A provides a means to gain a competitive edge, access new markets, and enhance capabilities.

In the decarbonisation age, with different stakeholders seeking different strategic outcomes in their decarbonisation efforts, M&As have become a major avenue to achieve these strategic goals. For instance, independent developers and utility companies are continuously seeking M&As to increase scale and expand renewable energy pipelines. 

However, this is different for new entrants in the sector, especially those companies that have traditionally been in oil and gas, as acquisitions provide them with an avenue to divert their portfolios and build capabilities. Similarly, financial institutions are now actively participating in M&A  as part of their strategy to accelerate growth.

With more people, especially in the top echelons of power, increasingly concerned about climate change risks and following the COP28 landmark deal aimed at transitioning away from fossil fuels, we expect more focus will shift to driving business model transformations and investments in the energy transition. This heightened awareness will further impact M&A activity in the near and medium term.