Global trading of energy and utilities reached a record level in 2018, registering a 28% increase in total transaction value to $ 256.3 billion and a total of 546 transactions, show the report EY Power transactions and trends Q42018..
Europe's trades attracted most of the value of energy and utilities transactions in 2018, $ 126.5 billion, and a 2.5-fold increase from $ 50.3 billion in 2017.
Renewable energy continued to fuel the volume of transactions - with 253 transactions accounting for 46% of the total volume in all regions and 19% of total transaction value ($ 48.3 billion).
In 2018, five transactions involving integrated utilities, each worth more than $ 1 billion, generated $ 32 billion (32%) of the total value of transactions in the US.
As far as capital flows are concerned, the United States remained the most attractive destination, the capital invested here in 2018, cumulating $ 81.4 billion, of which domestic transactions totaling $ 55.1 billion and foreign investment of 26.3 billions of dollars. Canada invested USD 20.2 billion in the US (67.3% of total Canadian investment activity), with domestic investment of just $ 6.1 billion.
China was the main investor abroad, placing $ 34 billion in other countries, of which $ 32.6 billion in Europe.
"2018 was an exceptional year for global energy and utilities trading, driven by portfolio optimization and large M & A transactions. Although corporations achieved 70% of the total number of transactions and generated 80% of their total value, there was a great deal of interest from financial investors as well. Also, the market for new energy sources has continued to grow both in size and importance, amid customer demand and regulations. As we move forward in 2019, we expect to maintain interest in renewable energy investments, energy storage and infrastructure for electric vehicles, "said Miles Huq, EY Global Power & Utilities Transactions Advisory.
Renewable energy and energy storage remain the main growth vectors on the American continent
In 2018, the value of US energy and utility transactions fell 3% to $ 98.9 billion, against a fall of 7% in the US, while the rest of the region recorded a 22% increase in the of the previous year. As for prospects, the projected changes in energy policies in Brazil, Mexico and Colombia could encourage investment in these countries.
In February 2018, the US Federal Energy Regulatory Authority (FERC) issued the 841 Order, which will allow markets to be opened up to energy storage resources and is expected to boost investment in energy storage in the United States.
Reforms pave the way for Europe's transition to green energy
European Union (EU) energy market reforms, including increasing targets for the share of renewable energy sources for 2030, imposing CO2 emission limits on the transport industry, and eliminating capacity allocation for fossil fuel-based electricity, aim at accelerating the transition towards green energy.
"And in Romania, we see corporate initiatives to promote electric cars and infrastructure to load them. The storage of electricity has gained a high interest and is waiting for a proper regulatory framework for the remuneration of investments. New modern wind turbine projects with increased dimensions / capacities and lower specific investment (which will lead to lower production costs) are in advanced analysis phases. We are expecting spectacular transactions with existing projects in the context of the need for integration on vertical production-supply. Against the backdrop of the absence of large centralized projects that should cover decommissioning of obsolete capacities, we will see a tendency to decentralize electricity production, with prominent leaders. Perhaps the first will be non-residential consumers, "said Valeriu Binig, Senior Advisor of EY Romania.
Production assets have fueled the value of Asia-Pacific transactions
Asia-Pacific recorded a 36% drop in transaction value to $ 29.7 billion from $ 46.7 billion in 2017. More than half (15.4 billion dollars) of transaction value was generated by production assets, amid two deals worth $ 9.5 billion.
"In 2019, against the background of rising interest rates, the volatility of macroeconomic conditions and political tensions that have a major impact on investors, we anticipate difficult conditions for the M & A market. It is possible for the market to change by favoring creditors to the detriment of borrowers, requiring a growing degree of sophistication to identify and materialize strategic investment opportunities, " Huq said.