Industries Energy, Utilities & Mining

Renewables Deals* 2009 Annual Review

Mergers and acquisitions activity within the global renewable power market

*connectedthinking Contents

01 Introduction 02 Report highlights 04 Deal totals: different sectors ebb and flow 06 Deal makers: the 2009 players 08 Deal places: a focus on markets worldwide

10 Europe

12 North America

14 Asia Pacific 16 Looking ahead 17 Contact us

Methodology and terminology

Renewables Deals includes analysis of all global renewable power sector deal activity. We define this as all deals relating to power generation by biofuels (incl. biomass, biodiesel and ethanol), solar, wind, hydro, tidal/wave and geothermal sources. We include deals relating to manufacturers and developers of renewable technologies (for example, wind turbine manufacturers and solar technology firms), which we identify in a separate ‘technology’ category. We exclude deals relating to nuclear power assets, those centred on energy efficiency and purchases of development rights. This year, we have expanded the range of data sources to provide the fullest possible account of deal-making for renewable power assets. The analysis is based on published transactions from the Dealogic ‘M&A Global database’, supplemented by databases from John S Herold; Mergermarket; Capital IQ and Thomson.

Analysis encompasses announced deals, including those pending financial and legal closure and those which are completed. Deal values are the consideration value announced or reported including any assumption of debt and liabilities. Figures relate to actual stake purchased and are not multiplied up to 100%. The location of the assets being acquired determines the analysis location. The total volume and value of deals differ slightly to those listed in our Power Deals 2009 publication due to the subsequent deduplication of one US$98 million deal. The Asia Pacific region is deemed to include Australasia, except where otherwise explicitly stated. Throughout the report, the Russian Federation is treated as a geographic entity in its own right. All presented numbers of deals exclude deals with no reported value. A full list of transactions throughout 2009 is available by visiting the Renewables Deals website at www.pwc.com/energy. Introduction 01

Welcome to the second edition of Our review shows that renewables deals Renewables Deals, an annual review by form a significant part of overall power PricewaterhouseCoopers of deal-making in sector M&A activity but that core the renewable energy sector. It sits (non-hydro) renewables deal activity has alongside its companion report – Power been very subdued. In part this reflects Deals – and, together, the two publications continued difficult conditions in credit provide a comprehensive look at trends and markets. In addition, many key players the outlook for M&A activity in the power have been focused on developing project utilities sector. portfolios that they have built up over a number of years. In this sense, investment This report examines the rationale behind is happening but not through M&A activity. the overall trends and the key individual deals in the renewable energy sector. We We look back, at 2008 and 2009, and have expanded the range of data sources ahead – through 2010 and beyond. to provide what we believe to be the fullest The end of 2009 saw the difficulties in account of deal-making for renewable Copenhagen of achieving global power assets. agreement on a successor to the Kyoto Protocol. In general, we do not see this as We also highlight, in a series of deal a key factor affecting deal-making as dialogues throughout the report, some of companies will be much more focused on the critical issues for companies engaging national and regional policy measures, in deal activity within the sector drawing on such as in the EU and US, which have a our global experience as an adviser to more direct bearing on deals. Looking players in major deals in renewable energy ahead, however, we see the outlook for markets. renewables deal-making remaining tough with the triggers for an upturn in M&A continuing to be uncertain.

Manfred Wiegand Mark Hughes Aad Groenenboom Global Utilities Leader European Leader European Leader Energy, Utilities & Infrastructure Advisory Renewable Energy 02 Report highlights

Wind lulls while hydro deals flow Solar shines only intermittently

With the notable exception of the US, In common with wind, deal-making for where stimulus and tax credit measures solar targets was subdued in 2009 as gave an impetus to activity, 2009 saw a uncertainty and constrained financing big decline in wind power deals. The affected sentiment. Solar deal numbers total value of wind power deals shrank fell 31% - from 181 in 2008 to 124 in 62% from US$16.5bn in 2008 to 2009 – and the total value of solar deals US$6.3bn in 2009 with a third fewer was down 44% to US$3.5bn. However, deals. The wind power deals that did get the solar sector is attracting a series of announced were for much smaller values acquisitions by larger more cash-rich - average wind deal value was down industrial companies as larger players 44% year-on-year. In contrast, both total extend their reach in the renewables value and average hydro deal value powered chain. Notable moves of this kind include forward – with total value up 50% from Bosch's acquisitions of majority stakes in US$10bn to US$15bn and average German solar module maker Aleo Solar hydro deal value nearly doubling. The and thin-film solar modules company share of hydropower in total renewables Johanna Solar Technology and Siemens’ deals value rose commensurately - from US$418 million acquisition of Solel Solar 26% in 2008 to 45% in 2009. In Systems. contrast, wind power deal share fell from 42% to 19%. 03

A growing slice of the power sector Utilities and financial buyers deliver the most deal value

The buoyancy in hydro deals meant that Deal-making is being driven by a range the overall decline in renewables deals in of types of buyer. Utility companies 2009, although marked in the wind and were on the buy-side in a growing solar sectors, was not as steep as that share of the 2009 deals – 42% of all experienced in the wider power sector. deals, accounting for 55% of total While the value of non-renewable power renewables deal value. The need to deals (electricity and gas deals excluding bulk up in renewables is a key driver renewables deals) fell 50% year-on-year, for utility companies alongside more the decline in renewables deal value was specific individual deal motivations 14%. The share of value attributable to such as those affecting the big hydro renewables deals rose from 17% in 2008 deals of 2009 (see ‘deal makers’). to 25% in 2009 – accounting for Infrastructure investors, private equity US$33.4bn of the gas and electricity firms and other financial players sector’s total 2009 US$131.1bn deal continue to show a high level of value. interest in renewables purchases. They were buyers in one in 10 of all deals but accounted for 25% of total renewables deal value. 04 Deal totals: different sectors ebb and flow

Renewable energy is accounting for an increasing slice Within the renewables sector, however, different segments of overall M&A activity in the power utilities sector. Deal tell very different stories. For example, there was a big numbers and total M&A value in the sector as a whole decline in wind power deals but an increase in hydro deals. declined significantly in 2009 but the decline in deals In 2008, wind power accounted for the largest slice (42%) for renewable assets or technology was much less of M&A value in the sector but this fell to just 19% in 2009. marked than in the wider sector. The share of total The total value of wind power deals shrank 62% from sector value attributable to renewables deals rose from US$16.5bn in 2008 to US$6.3bn in 2009 with a third fewer 17% in 2008 to 25% in 2009 – accounting for deals. The wind power deals that did get announced were US$33.4bn of gas and electricity’s US$131.1bn total for much smaller values - average wind deal value was deal value. down 44% year-on-year. In contrast, both total and average hydro deal value powered forward – with total value up The US$33.4bn worth of M&A stemmed from 549 50% from US$10bn to US$15bn and average hydro deal renewables deals. The number of renewables deals fell by value nearly doubling. The share of hydropower in total over a third (36%) year-on-year from 2008 to 2009 but renewables deals value rose commensurately - from 26% in average deal size (for deals with disclosed values) rose by 2008 to 45% in 2009. a third (34%) – up from an average of US$45.5 million to US$60.8 million (figure 1). The net effect was a significant A surge in large hydro deals buoyed overall renewables but relatively modest fall in total renewables deal value – deals totals. As we see in the next chapter, five of the 10 down 14% from US$38.9bn in 2008 and much less than largest deals in 2009 involved hydro assets with a spread of the 50% fall in total M&A value for non-renewable power deals in China, Europe, North and South America reflecting assets (see our companion Power Deals report). a variety of deal motivations and circumstances. If we exclude hydro deals from our review, it leaves a very different picture for the rest of the sector – the total value of non-hydro deals fell 36% from US$28.9bn in 2008 to US$18.4bn in 2009 and deal numbers were down 38% from 740 to 460.

Figure 1: All renewables deals by value (US$bn) and number of deals

2008 2009 Change in 2009 Number Value Number Value % number % value

856 US$38.9bn 549 US$33.4bn -36% -14%

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 05

Deal value in each of the other (non-hydro) major segments A quarterly analysis of renewables deal activity (figure 3) of the renewable energy sector fell significantly, with the suggests that the brake that was put on renewables deal exception of the ‘diversified’ segment where two large deals value in 2008 by the impact of the credit crisis and – the US$3.5bn Acciona and the US$1.5bn TransAlta economic downturn continued and intensified during 2009. purchases (see the ‘deal makers’ section) – distorted the Falls in value have been accompanied by reduced deal overall picture and kept deal value up. The total value of activity. Indeed, a slowing of announcements, which had solar deals followed a similar course to those in the wind not been especially marked in 2008, really took hold in power sector. Total solar deal value shrank by nearly half 2009 such that there were just 246 deals announced in the (44%) from US$6.3bn in 2008 to US$3.5bn in 2009 reflecting second half of 2009 compared to 460 in the second half of reduced deal activity and smaller average deal sizes. 2008. This slowing of deal activity continued into the final Total biofuel deal value fell two-thirds from US$2.6bn to quarter of 2009. US$1.9bn. Deal numbers in all the major segments (including hydro) also fell, with the largest falls in biofuel deals (down 66%), wind (down 32%) and solar (down 31%).

Figure 2: Renewables deals total deal value and percentage share by sector (Deal numbers shown in parenthesis)

2008 (US$38,934m) 2009 (US$33,380m)

Hydro US$10,028 26% (116) Hydro US$15,019m 45% (89)

Wind US$16,451m 42% (296) Wind US$6,274m 19% (200)

Solar US$6,256 16% (181) Diversified US$6,052m 18% (42)

Biofuels* US$2,644m 7% (178) Solar US$3,508m 11% (124)

Diversified US$2,489m 6% (45) Biofuels* US$1,883m 6% (60)

Geothermal US$1,065m 3% (34) Geothermal US$629m 2% (32)

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review *including biomass, biodiesel and ethanol

Figure 3: Quarterly tracking of renewables deals by value (US$m) and number of deals

By value (US$m) By number

Q1 5,320 Q1 149 2008 7,066 140 2009 Q2 12,112 Q2 247 13,854 163 Q3 15,980 Q3 245 4,584 122 Q4 5,522 Q4 215 7,876 124

5 10 15 20 30 60 90 120 150 180 210 240 270

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 06 Deal makers: the 2009 players

Hydropower accounted for half of the 10 largest deals of 2009 Acciona is now a significant renewable energy specialist with in contrast to 2008 when wind dominated and only two of the generation in Spain and the US as well as toeholds in other top 10 deals were for hydro assets. The largest deals were also parts of the Americas and also in Asia. The company has more geographically dispersed with all of the major markets declared its ambition to expand in key foreign markets, represented in the top 10 compared to 2008 when seven were replicating its Spanish model of combining renewable power European deals. assets with sustainable infrastructure. The strategy makes the company a prime contender to be a buyer of renewable power The biggest deal was the US$6bn transfer of power assets or other renewable companies in its target markets in generating units in the Three Gorges Hydroelectric facility in the coming years. In July 2009 Acciona signed a US$2.8bn China from parent company China Three Gorges Project strategic alliance with Japan's Mitsubishi Corporation to Corporation to its majority-held Shanghai-listed power develop and operate renewable energy projects and share producer China Yangtze Power. The deal was the most innovation aimed at leading the development of sustainable notable example of a number of deals in the Chinese power solutions worldwide. As a first step in this new collaboration, utilities sector in which power generation assets were moved Mitsubishi Corporation took a 34% equity stake earlier in the into listed entities as part of their continued restructuring and year in Acciona’s PV solar plant in Amareleja, Moura in integration process. Portugal. The 45.8 MWp facility is the world’s largest grid-connected solar plant. The second largest renewable energy deal in 2009 – Acciona’s US$3.7bn purchase of Endesa’s renewable wind and hydro A second large European renewables deal – E.ON’s US$2bn power assets – was very much a product of earlier mega-deal sale of 13 hydroelectric plants with a combined capacity of consolidation in the European power sector. The deal formed 312 megawatts to Austria’s Verbund - also had its roots in part of the exercise of a ‘put option’ by Acciona to sell its wider European power sector realignment, although this time wider stake in Endesa to Italy’s Enel while, at the same time, prompted directly by a regulatory impetus. The sale was part purchasing a portfolio of wind and hydro assets. The option of E.ON’s commitment to the European Commission to divest dates back to Enel’s original deal to buy Endesa in 2007. generation and transmission assets. However, the move is also a key step in Acciona’s journey from a construction company to one that majors on Away from Europe and China, the largest renewable energy sustainability and renewable energy. deal was in North America with TransAlta’s US$1.5bn purchase of Canadian Hydro Developers. The acquisition followed a three month takeover battle following an unsolicited bid by TransAlta which itself had followed unsuccessful joint negotiations initiated by TransAlta in its bid to become the largest publicly traded provider of renewable energy in Canada.

Figure 4: Top Ten – renewables deals 2009 (Please refer to the Deal places section, pages 8 to 15, for more insights on the listed deals)

No. Value of Date Target name Target nation Acquirer name Market Type of transaction announced segment purchase (US$m)

1 5,966 15 May 09 Three Gorges Industry Co Ltd China China Yangtze Power Co Ltd Hydro Operational

2 3,685 20 Feb 09 Endesa SA-Assets Spain Acciona SA Diversified Operational

3 1,988 08 Jun 09 E.ON AG Germany VERBUND Innkraftwerke GmbH Hydro Operational

4 1,498 20 Jul 09 Canadian Hydro Developers Inc Canada TransAlta Corp Diversified Operational

5 1,138 17 Oct 09 Empresa de Energia del Pacifico S.A. Colombia Inversiones Argos; Compania Colombiana de Hydro Inversiones sa ; Banca de Inversión Operational Bancolombia S.A.

6 900 3 Dec 09 Iberdrola Renewables, Inc. United States Pacific Gas & Electric Co. Wind Operational

7 741 4 Oct 09 Elkem Energi Siso AS and Elkem Energi Norway Ostfold Energi As; Nord-Trøndelag Energiverk Hydro Operational Lakshola AS Energi AS

8 724 17 Jun 09 Teck Resources Limited Canada BC Hydro Hydro Operational

9 658 12 Mar 09 Rezende Barbosa SA - Aministracao e Brazil Cosan SA Industria e Comercio Biofuels Participacoes Operational

10 571 06 Nov 09 AES Corp United States China Investment Corp (CIC) Wind Operational

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review, based on published transactions from the Dealogic ‘M&A Global’ database and the John S. Herold Inc. ‘M&A database’, December 2009. 07

In taking over Canadian Hydro, TransAlta acquired 21 Technology acquisitions represent a significant, albeit small, renewable energy generation facilities totalling net 694 MW of element of renewables M&A (figure 6). Some of these are deals operational capacity and a further 18 MW under construction. between companies whose main businesses have a wider Canadian Hydro’s renewable generation portfolio is diversified technological footprint and so do not show up in our data as across three technologies (water, wind and biomass) in the they are classified in other sectors such as engineering. The provinces of Alberta, British Columbia, Ontario, and Quebec. solar sector is seeing a trend of acquisitions by larger more cash-rich technology companies as companies face falling The remaining US$1bn plus deal in the 2009 top 10 table is the prices for their products and constrained finances. In turn, this US$1.1bn sale by Gas Natural of its 64% stake in Columbian gives the larger industrial groups a chance to extend their reach utility, Empresa de Energia del Pacifico (EPSA), to a group led in the renewables value chain. Bosch's acquisitions of majority by Colombiana de Inversiones. Like the Endesa deal, the sale stakes in German solar module maker Aleo Solar and thin-film has its roots in an earlier European mega-consolidation move. solar modules company Johanna Solar Technology - a year Gas Natural’s EPSA stake was a consequence of its merger after Bosch acquired cell maker ErSol Solar Energy – typifies with fellow-Spanish power producer Union Fenosa, and the this trend as does Siemens’ US$418 million acquisition of Solel sale represented a divesting of non-core assets. Solar Systems, which strengthens its aim to be a global leader in the emerging solar thermal power plant sector. We look at the rest of the top 10 deals in the regional chapters that follow. In terms of acquirer types, renewables deal activity Private equity is also showing a high level of interest in is increasingly being driven by players from outside of the renewables technology purchases, as illustrated by the pure-play renewables sector. Purchases by utility companies, HgCapital/AIG Financial Products Corporation deal in solar (see infrastructure funds and other financial investors account for Europe section) and activity in the wind sector by players such the majority of deals and deal value (figure 5). Infrastructure as Nordic Capital and Riverstone Holdings. Another trend in the funds and other financial investors, for example, were on the technology deal space is the increasing role of players such as buy-side in a quarter (24%) of renewables deals in 2009, up Siemens and Rolls Royce providing early stage funding through slightly from the previous year, although the value of their stakes in technology providers in the nascent wave and tidal purchases was down on 2008 levels. However, the largest sector. Siemens bought a stake in Marine Current Turbines in category of buyers is power utility companies, who accounted early 2010 and Rolls Royce has a stake in Ocean Power for 55% of total deal value in 2009, reflecting the importance of Technology. bulking-up the proportion of renewable generation in their portfolios.

Figure 5: Renewables deals by acquirer type – 2008-2009

2008 2009 Number Value (US$m) % number % value Number Value (US$m) % number % value

Alternative energy 7 3,545 14% 13.7% 6 1,937 12% 7%

Diversified 6 2,375 12% 9.2% 2 1,638 4% 6%

Infrastructure/finance 11 4,225 22% 16.4% 12 3,060 24% 10%

Other 7 3,391 14% 13.1% 9 6,609 18% 23%

Utility 19 12,277 38% 47.6% 21 15,908 42% 55%

Total 50 25,812 100% 100% 50 29,152 100% 100%

*Note: based on the largest 50 deals by value, which represent over 75% of total deal value Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review

Figure 6: Operational vs technology purchases – 2008-2009*

2008 2009 Number Value (US$m) % number % value Number Value (US$m) % number % value

Operational 45 22,627 90% 88% 44 27,094 88% 93%

Technology 5 3,185 10% 12% 6 2,059 12% 7%

Total 50 25,812 100% 100% 50 29,153 100% 100%

*Note: based on the largest 50 deals by value, which represent over 75% of total deal value Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 08 Deal places: a focus on markets worldwide

Deal numbers in all the major regions fell year-on-year Europe continues to be the focus for the largest with typical declines of more than 40%, for example in concentration of renewables deals, accounting for 44% of North America, South America and Asia. European deal all deals in 2009, up from 38% in the previous year. In activity was the most resilient but, even here, the 2008 Europe accounted for about half of total renewables number of deals fell by 27%. The biggest drop in deal deal value. This fell to 38% in 2009, still by far the largest activity was in Australasia where the number of deals share of any region, but down because of the impact of fell 59% year-on-year and total deal value was down the value of large hydro deals in China and Columbia, 69%. Uncertainty around carbon trading and a fall in which helped push up the Asia and South America share. the value of renewable energy certificates in Australia Together these two regions accounted for 36% of 2009 formed the background for these falls. total deal value, up from 19% in 2008.

Figure 7a : All renewables deals by region

North America 2008 2009 % change

Value of deals (US$m) 9,667 7,843 -19%

Number of deals 242 143 -41%

Average deal value (US$m ) 39.9 54.8

Europe 2008 2009 % change

Value of deals (US$m) 20,425 12,747 -38%

Number of deals 329 240 -27%

Average deal value (US$m) 62.1 53.1

Russian Federation 2008 2009 % change

Value of deals (US$m) 902 33.0 -96%

Number of deals 8 11 38%

Average deal value (US$m) 112.8 3.0

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 09

Elsewhere, North America’s share of deal volume held broadly level at just under a quarter (23%) of world-wide renewables deal value, down slightly from exactly a quarter (25%) in 2008. Behind Europe, it is North America and Asia that account for the largest share of total renewables deal value – both at 23%. The Russian Federation was the only region to see an increase in the number of deals but from a very small base and with very low values compared to the previous year.

South America 2008 2009 % change

Value of deals (US$m) 1,389 4,426 219%

Number of deals 52 28 -46%

Average deal value (US$m) 26.7 158.1

Asia Pacific 2008 2009 % change

Value of deals (US$m) 5,854 7,736 32%

Number of deals 187 111 -41%

Average deal value (US$m) 31.3 69.7

Australasia 2008 2009 % change

Value of deals (US$m) 357 111 -69%

Number of deals 29 12 -59%

Average deal value (US$m) 12.3 9.2

Figure 7b: Share of all renewables deals by continent by value of transactions – 2008-2009

2008 (total US$38,934m) Europe 52.5% 2009 (total US$33,380m) Europe 38.2% North America 24.8% North America 23.5%

Asia Pacific 15% Asia Pacific 23.2% South America 3.6% South America 13.3%

Russian Federation 2.3% Middle East 1.5% Australasia 0.9% Australasia 0.3%

Middle East 0.9% Russian Federation 0.1%

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 10 Deal places: Europe

As in the previous year, activity for assets on the Iberian European wind power M&A activity fell by a third with Peninsula dominated much of the renewables deal 103 deals in 2009 compared to 151 the previous year. activity in Europe. However, unlike in 2008 when, Total wind power value fell even more dramatically – by together, Portugal and Spain accounted for 55% of 76% from US$12.3bn in 2008 to US$3bn in 2009 – in European deal value fairly evenly between them, it was the absence of any large ‘pure wind’ deals to remotely Spanish assets that accounted for 44% of the region’s rival the trio of US$1bn plus wind deals (the purchases 46% share of the 2009 European total. Nearly two thirds of Airtricity, EDP Renovaveis and Infigen/Babcock & (65%) of the US$5.6bn Spanish deal value stemmed Brown assets) that boosted M&A totals in 2008. It from a single deal - Acciona’s US$3.7bn purchase of should be noted, however, that the wind totals do not renewable energy assets from Endesa. include the substantial wind element in Acciona’s US$3.7bn purchase of Endesa’s renewable power Deals in the wind and solar sectors comprised the vast assets which falls into the ‘diversified’ category. majority of deal activity – together accounting for three quarters (76%) of all deals. Most of these deals are quite We look at the two largest European 2009 deals – the small so, when it comes to share of total deal value, it is US$3.7bn Acciona/Endesa and US2bn E.ON/Verbund the hydro and diversified (more than one sector) assets transactions – in the earlier ‘deal makers’ section. One that dominate. While only accounting for 13% of deals, further European deal featured in the top 10 renewables hydro and diversified deals delivered 59% of total deals of 2009 – the all-Norwegian US$741 million hydro European renewables deal value in 2009. The dominant sector purchase of Elkem Energi Siso and Elkem Energi share of hydro and diversified assets was even greater Lakshola by Ostfold Energi and Nord-Trøndelag as a result of a sharp deal falls in the European wind and Energiverk Energi. The sale of its hydro assets by metals solar sectors. Solar deal value more than halved year-on- company Elkem comes against the background of year, from US$4.5bn to US2.1bn, although solar deal Norway’s ‘reversion’ law whereby ownership of hydro numbers held up with 78 deals in 2009, a small dip on assets must revert to the state after a period of years. the 82 solar deals the year before. This law has been supplemented by the Concession Act 2008 which gives only publicly-owned power companies the right to buy or build large hydropower plants. Elkem’s sale attracted competion from several bidders with the company choosing to sell in 2009 in the expectation that consolidation in the power market would limit competition in a sale later on.

Figure 8: Europe renewables deals by sector – 2009

By value % share of total Number of deals % share of total (US$m) Europe deal value Europe deal number

Biofuels 102 1% 21 9%

Diversified 4,312 34% 17 7%

Geothermal 29 0% 6 3%

Hydro 3,246 25% 14 6%

Solar 2,099 16% 78 33%

Wave/Tidal power 0 0% 1 0%

Wind 2,959 23% 103 43%

Total 12,747 240

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 11

PwC deal dialogue:

The three largest European deals for renewable power assets illustrate a pattern of the big renewables deals in 2009 being motivated by factors outside of the renewables sector – the postscript to the Enel/Endesa mega-deal consolidation in the case of Acciona’s purchase and regulatory impetus in the case of the E.ON and Elkem hydro sales. In the meantime, Challenges for offshore wind underlying core renewables deal activity has been very The technology choices available to governments subdued and down substantially on previous years. Financing to meet renewable energy targets are constrained has been tight and many companies are taking a ‘wait and see’ by technological maturity and geography. approach to deal-making as well as focusing on the follow-up Onshore wind remains the dominant source of to deals completed from earlier periods. In addition, the renewable power in most markets but, for those constrained conditions have not resulted in a significant flow of countries with an offshore wind resource, we are distress-induced deals. Instead, companies have sat on seeing an escalation in the plans for rolling out large scale offshore projects. development portfolios so they weren’t forced to sell and, therefore, the most direct impact of lack of finance was a In 2009, a total of eight new wind farms slowing in the build-out rate rather than actual sales. consisting of 199 offshore wind turbines, with a combined power generating capacity of 577 MW, Private equity buyers remain actively interested in European were connected to the grid in Europe1. This renewable energy acquisitions although, during 2009, only a represents a growth rate of 54% compared to the proportion of such interest translated into actual transactions. 373 MW installed during 2008. For 2010, the European Wind Energy Association (EWEA) On the sell-side, most private equity investors preferred to expects the completion of 10 additional European delay until market conditions are more favourable. The biggest offshore wind farms, adding 1,000 MW and purchase in 2009 was British private equity firm HgCapital’s equivalent to market growth of 75% compared to US$390 million purchase of three solar phohotovoltaic plants in 2009. Spain, from US investment company, AIG Financial Products Corporation. Also notable, was AXA Private Equity’s US$317 Yet, as the size of project, the water depths and million leveraged buyout of Babcock & Brown’s French wind distances offshore all increase, the risks around the delivery of these projects and the funding energy assets. challenges also increase. The traditional developers of these projects (primarily large utilities) are facing funding constraints given the size of capital investment required across their Figure 9: Top Ten – Europe renewables deals by country – 2009 portfolios. With new sources of equity and project finance available for constructed assets, the By value % share of total challenge becomes one of how best to fund the (US$m) Europe deal value construction and meet the commissioning risks for new offshore wind. Spain 5,635 44% This will require access to new sources of capital Germany 2,544 20% such as insurance and pension funds and specialist renewable funds. However, there is a Norway 1,537 12% mismatch – the risk-reward profile for these sources of capital and that currently achievable UK 581 5% through an offshore wind project are not currently Turkey 500 4% aligned. One of the challenges for governments will be to create the environment to match the France 381 3% needs of these different investors, which is likely to require measures to reduce the level of Denmark 273 2% construction risk and, probably, also to increase the returns available to investors. They will also Finland 220 2% need to balance the costs of these measures with the impact on end-consumer power prices as, Sweden 216 2% ultimately, the consumer will bear the brunt of the burden in decarbonising the energy mix. Portugal 213 2%

Other 646 5%

Total 12,747 100%

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 1 Source: European Wind Energy Association 12 Deal places: North America

Although the largest North American deal – TransAlta’s The PG&E wind investment followed an announcement by US$1.5bn purchase of Canadian Hydro Developers – was the company, earlier in 2009, that it is embarking on a five- for a diversified target (see earlier ‘deal makers’ section), it year programme to develop up to 500 megawatts (MW) of was deals for pure wind targets that leapt to the fore in solar photovoltaic (PV) power in its northern and central 2009. Wind power contributed the largest share of North California service area, split equally between directly American 2009 renewables deal activity, accounting for owned PV generation and half built and owned by exactly a third of deal value and virtually the same share independent developers. The third largest North American (34%) of the deal count, up from a 17% value share and a deal, after the TransAlta and PG&E deals, was Canadian 27% number share in 2008. BC Hydro’s US$724 million purchase of a one third interest in Teck Resource’s Waneta Dam. The divestment by base The increased wind share came against a backdrop of metal miner Teck, of the output of the dam which is surplus accelerated growth in the US renewable energy sector as to its own requirements, helped repair the company’s the industry benefited from government stimulus measures balance sheet following its 2008 US$14bn acquisition of and tax incentives for investment. However, there was an Fording Canadian Coal Trust close to the height of the overall fall in deal activity for non-wind assets with total commodities boom. value down 19% and deal numbers down 41%. Indeed, the number of wind deals also fell – by a quarter year-on-year – Perhaps the most significant 2009 deal was the fourth but total wind deal value rose 58% from US$1.6bn in 2008 largest in North America – sovereign wealth fund China to US$2.6bn in 2009, buoyed by Pacific Gas & Electric’s Investment Corporation’s (CIC) US$571 million purchase of (PG&E) US$900 million investment in the Manzana wind a 35% share of the wind power business of US utility project in California. The deal, with Iberdrola’s US company AES. The deal was announced concurrently with subsidiary, Iberdrola Renewables, is the US utility a bigger investment by CIC in a 15% stake in AES company’s first investment in wind power and will deliver Corporation as a whole. The deal comes against a up to 246 megawatts of generation capacity. As well as background of US-Sino relations by AES. It was the first being the largest generator of wind power in Europe, American power company to enter China in the early 1990s Iberdrola has also reached a number two position in and remains one of the few foreign players in the Chinese the US. power sector. The deal reflects two big trends – the Chinese appetite for foreign investment with CIC as a key player across a range of industries and the need for developers to explore a wider range of funding sources for renewable power projects as traditional sources of investment remain tight.

Figure 10: North America renewables deals by sector – 2009

By value % share of total Number of deals % share of total (US$m) North America deal value North America deal number

Biofuels 758 10% 23 16%

Diversified 1,505 19% 14 10%

Geothermal 277 4% 14 10%

Hydro 1,872 24% 14 10%

Solar 836 11% 28 20%

Wave/Tidal power 15 0% 1 1%

Wind 2,579 33% 49 34%

Total 7,842 100% 143 100%

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 13

PwC deal dialogue:

After wind and hydro, deals for diversified targets and solar deals comprised the most significant other segments of North American 2009 renewables deal activity. The US$1.5bn diversified total was almost wholly accounted for by the TransAlta purchase. In the solar sector, although the number of deals fell 39% from 46 to 28, total solar deal Financing renewable energy projects in the US value, at US$836 million was only 9% below its US$922 million 2008 level. Two relatively large solar deals dominated Political leaders from around the world gathered at the Copenhagen Climate Conference in the 2009 total – First Solar’s US$400 million purchase of December 2009. Although no consensus or Optisolar’s solar project pipeline and MEMC Electronic agreement on global targets for reduction of Materials’ US$388 million move for SunEdison. emissions was reached, participants recognised that climate change is one of the greatest The purchase by First Solar was a significant consolidation challenges of the present day and that actions move in the Californian solar industry. Optisolar had been a should be taken to keep any temperature player in PG&E’s PV programme (see earlier in this section) increases to below 2°C. but ran into difficulties when it could not secure the funding to expand. The deal gives First Solar the 550 megawatt Notwithstanding the impasse at Copenhagen on (MW) solar power purchase agreement with PG&E as well actual emission reduction targets and as a pipeline that includes 1.3 gigawatts (GW) of solar mechanisms, a number of countries have created various incentive or subsidy programmes to development projects being negotiated with utility encourage the development and building of wind, companies and 136,000 acres of strategic land rights with solar and other forms of renewable generation. In the potential to deploy up to 19 GW of additional solar several countries, notably Germany and Spain, projects. The move by silicon manufacturer MEMC for solar these programmes have included ‘buy-in’ tariffs installer and financier SunEdison was an example of a for renewable energy projects. Such tariffs manufacturing and technology company expanding its provide the developers of renewable projects footprint down the solar supply chain. The purchase long-term off-take contracts for the sale of the enables MEMC to participate in the actual development of electricity generated at above market prices. solar power plants and commercialisation of clean energy, in addition to supplying the solar and semiconductor A different approach has been taken in the US where federal policies have been adopted to industries with its silicon wafer products. provide incentives through tax credits and accelerated tax depreciation of equipment. To benefit from the tax advantages, the developer and/or other investors in the renewable energy project must have sufficient future cash tax liabilities to efficiently realize the economic value of the tax incentives.

The US tax incentive programmes make it more challenging for smaller or start-up companies and non-US companies with little or no cash tax appetite in the US to develop renewable energy Figure 11: North America renewables deals by country – 2009 projects. The current economic climate has also By value % share of total significantly reduced the number of traditional (US$m) North America deal value investors that have the tax appetite to utilise the benefits of these incentive programmes. United States 4,906 63% To overcome these barriers, various complex Canada 2,936 37% partnership structures are being created to enable the project developers to monetise the Total 7,842 100% tax incentives. Such structures require the identification of ‘tax partners’ that have the ability Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review to efficiently utilise the tax benefits. Nonetheless, in periods when the tax incentives exceed the available ‘tax equity’ partners, the development and financing of renewable projects can be negatively impacted resulting in the either delay or cancellation of the project. A clear understanding of the importance of these structures and the roles played by various parties is critical for success in the US renewable market. 14 Deal places: Asia Pacific

On the surface, Asia Pacific’s contribution to worldwide Away from China, Japan is also a key technology player in renewables deal value looks buoyant with a 26% year on year renewable energy although a lot of the industry’s focus is on increase in value from the region as a whole. But nearly foreign export markets. Renewable energy, including hydro US$6bn of the total US$7.9bn deal value came from two power, has less than a 10% share of total generated electricity single Chinese hydro deals. The underlying reality is that, in Japan and the share of solar and wind power is marginal. following a subdued year in 2008, Asia Pacific renewables However, Prime Minister Yukio Hatoyama’s government has deal-making fell to even lower levels in 2009. considerably stepped up the country’s 2020 emission reduction targets, which is likely to spur future activity. In the The number of Asia Pacific deals fell 43% from 216 in 2008 to meantime, much of the investment interest is focused just 123 in 2009. Deals outside China nearly halved, down to overseas (see deal dialogue). 54 from 122 and the total value of these deals fell 65% from US$2bn in 2008 to US$689 million in 2009. In turn, 90% of Such interest, however, has been stalled somewhat by the total value of the US$7.2bn worth of renewables deals for continuing uncertainty on the long-term regulatory outlook for targets inside China was accounted for by the US$6bn Three the industry in key markets and the level of support for Gorges deal and the US$0.5bn purchase by Guangxi Guiguan renewables. This has been a major barrier to deals, for Electric Power of a 70% stake in Datang Yantan Hydropower example, in Australia. Deal making has faltered partly due to from China Datang Corporation. uncertainty over the introduction of a carbon trading scheme by the government led by Prime Minister Kevin Rudd. A common trend among the major state-owned generation Originally planned for 2010, the scheme was delayed until entities in China is to transfer power plants to their majority mid-2011 but the legislation is still bogged down in the owned listed companies. This enables them to consolidate Australian parliament. The opposition Liberal party has now and integrate the power generation operation to achieve joined the National party in opposing the scheme and, with an synergies, streamline operations through central management election due before April 2011, there is increasing uncertainty and, in some cases, gain funding for further expansion. The over whether the scheme will become operational at all. The Three Gorges deal was the most notable example of this renewables sector in Australia has also been affected by an strategy in 2009. The Guangxi Guiguan Electric Power / artificial increase in the supply of renewable energy certificates Datang Yantan Hydropower deal also involved a transfer from which has had the effect of dramatically reducing their price in a parent company, in this case China Datang Corporation, 2009, thus acting as a disincentive for utilities to conclude through the issuing of shares by the purchaser to the parent. longer-term power purchase agreements for renewable generation. China is positioning itself as a leader in the renewable energy technologies of the future. It is the leading manufacturer of Nonetheless, the two largest Australian listed electricity solar photovoltaic (PV) cells in the world and has established retailers, AGL and Origin Energy, have been very active in incentive policies to boost domestic demand and developing their own portfolios of renewable energy projects. deployment, including a feed-in tariff. In July 2009, China set AGL has been widely perceived by the market to be ahead of a feed-in tariff for new onshore wind power plants, giving Origin Energy in renewable project development, although this wind generation a significant premium on the average rate perceived gap was significantly addressed in May 2009 with paid to coal-fired electricity generators. In power generation, Origin’s purchase of Wind Power Pty Limited, whose portfolio renewables already take a much larger share, partly as a included 1460MW of premium wind sites under development. result of the country’s hydro resources and government The acquisition builds on the extensive renewable energy targets for wind and solar. Such targets, as well as the high positions already held by Origin across Australia and New cost of coal, are prompting the main generating companies to Zealand, including investments in wind, hydro, geothermal and source a growing proportion of power from renewables. solar technologies.

Figure 12: Asia Pacific renewables deals by sector – 2009

By value % share of total Number of deals % share of total (US$m) Asia Pacific deal value Asia Pacific deal number

Biofuels 21 0.3% 10 8%

Diversified 147 1.9% 7 6%

Geothermal 322 4.1% 7 6%

Hydro 6,767 86.2% 39 32%

Solar 140 1.8% 16 13%

Wave 0 0% 0 0%

Wind 450 5.7% 44 36%

Total 7,847 100% 123 100%

Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 15

PwC deal dialogue: One Japanese outbound deal that did take place in Australia, and indeed the largest Australian deal in 2009, was the US$77 million sale of the (under construction) Hallett 4 wind farm by listed power utility AGL to the Energy Infrastructure Investments consortium ("EII"), an unlisted investment vehicle comprising Japanese trading house Marubeni Corporation, Japanese utility Osaka Gas, and the Australian APA Group. In acquiring Hallett 4, EII will fund all remaining development and construction costs under project finance facilities established as part of the transaction. EII will own Making the most of Japanese renewables investment the wind farm, while AGL will buy all of the electricity and renewable energy certificates produced under a contract which also There is a significant pent-up demand for renewable effectively underwrites wind risk. AGL will also operate and targets in the wider Asia Pacific region and further afield maintain the facility under long term fixed cost arrangements. from Japanese investors. Strong demand in other parts of the world but slow demand in the domestic market has The largest Japanese overseas renewables deal in 2009 was meant that Japanese trading houses, electric power Sumitomo Corporation’s US$107 million purchase of a 42.5% share companies, oil & gas distributors and technology in Stanton Wind Energy’s 120MW wind farm in Martin County, companies alike are becoming key players in the Texas. Sumitomo is an integrated trading and investment enterprise renewables M&A market. Understanding Japan’s distinct covering a range of industries. The deal, through Sumitomo’s US business culture is a key prerequisite to making the most subsidiary, is the company’s first foray into the US wind energy of this investment opportunity. market and was made partly in response to US governmental incentives that are encouraging renewable energy investments. The sogo shosha, or integrated trading company, The de-risked nature of the Hallett 4 deal and the Sumitomo business model is at the heart of Japanese industry and purchase of a completed wind farm makes these deals perhaps not investment. The seven largest sogo shosha – Mitsubishi, fully representative of the type of investment being considered by Mitsui & Co., Itochu, Sumitomo, Marubeni, Toyota Japanese players who are also actively considering other in- Tsusho, and Sojitz - are huge powerhouses and many of development or undeveloped sites where they can take more risk the names are already familiar in the renewables M&A and, sometimes, gain from adding their technology expertise. landscape. Mitsubishi, for example, is a major investor of this kind, and has entered into a global alliance with Acciona of Spain to co-operate Some of the deals concluded by the sogo shosha in the on renewable energy, and particularly solar energy, projects last few years include: • Itochu’s purchases of solar-related parts makers and worldwide (see deal dialogue). service providers – Greenvision Ambiente Photo Solar (Italy, Dec 2008), Enolia Solar Systems (Greece, Jan 2009), Solar Net (US, April 2009). • Marubeni’s October 2009 acquisition of Australia’s Figure 13: Asia Pacific renewables deals by country – 2009 Hallett 4 wind farm with other EII investors. By value % share of total • Mitsubishi’s 34% stake taken in March 2009 in (US$m) Asia Pacific deal value Acciona’s PV solar plant in Amareleja, Moura, Portugal - the world’s largest grid-connected solar China 7,157 91.2% plant. • Mitsui & Co’s 2008 purchases of a Spanish solar Philippines 220 2.8% power generation company with UK-based International Power and the Bald Hills Wind Farm in India 141 1.8% Australia. • Sumitomo’s July 2009 stake in Stanton Wind Australia & Oceania 111 1.4% Energy’s 120MW wind farm in Martin County, Texas. Pakistan 60 0.8% PricewaterhouseCoopers can help companies develop South Korea 52.5 0.7% and tailor solutions to make the most of M&A transactions with Japanese counterparties, both to get Japan 45 0.6% off to a positive start and then throughout a deal process. Our services include: Vietnam 38 0.5% • Support in facilitating introductions to a Japanese counterparty and in initiating/opening communications, Thailand 10.5 * as well as advising on the approach to be adopted; • Acting as conduit in the provision of information to Laos 8 * a Japanese counterparty, including advice on the Malaysia 3 * appropriate content of such information and the provision of any required linguistic support; Sri Lanka 1.7 * • Leading or supporting your negotiations with a Japanese company. Singapore 0.05 * • Advice and assistance in development of mutually acceptable ways for the formation of a collaboration Total 7,847 100% or alliance with a Japanese counterparty. • Specialist execution support through the deal process. *Note: Less than 0.5% • Post deal integration support. Source: PricewaterhouseCoopers, Renewables Deals 2009 Annual Review 16 Looking ahead

The coming year is set to be another tough into a significant flow of ‘distress’ sales. The key one for renewables deals. Despite the question will be whether such developers have sufficient underpinning of renewables by incentive resources to be able to continue to sit on projects until conditions improve or whether they have to sell. We mechanisms in Europe, the US and some could see more such sales being a driver of deal activity other territories, the triggers for an upturn in in the period ahead. M&A continue to be uncertain. Financing conditions remain constrained. Signals for a In North America, the more dynamic M&A renewables convincing recovery stay mixed and, indeed, environment triggered by the Obama presidency there remains a significant risk that recovery stimulus measures and the window of opportunity for tax incentives will continue in the period ahead. The could stall. American Recovery and Reinvestment Act of 2009 extended the eligibility dates of tax credits for facilities Utility companies, who have been the biggest buyers of producing electricity from certain renewable sources renewables assets, face massive capital investment including wind, biomass, geothermal energy, challenges to replace ageing infrastructure and to hydropower and marine. The Act also gives companies modernise through, for example, the introduction of a choice between an energy investment tax credit or a smart grids. These companies will be assessing how production tax credit. To qualify, such investments have best to manage this while also maintaining their to be ‘placed in service’ by the end of 2012 for wind and corporate credit ratings. This could inhibit deal flow with the end of 2013 for other renewables, thus providing a renewables having to compete hard for capital with specific one-off investment opportunity, which will form other types of energy assets as utility companies a key background to deal activity. prioritise investment that they perceive will have the most short to medium term strategic value. The interest of Chinese and Japanese investors in foreign acquisitions, already evident in 2009, is likely to In many parts of the world, wind power is coming of age become a more marked feature of the future renewables with an acceleration of new projects. This growth is deal market. Within the Asia Pacific region, the deals putting pressure on the supply chain and, in turn, this is landscape remains uncertain and much will depend on promoting M&A interest and the development of joint the future course of key regulatory issues. For ventures and strategic alliances. We are likely to see developing countries, these include uncertainty about more financial investor interest in companies that are the future of the clean development mechanism and the occupying sought-after components or services in the trading of certified emission reduction (CER) credits supply chain. Wind farm developers and operators will post-2012 following the failure to reach agreement on a be similarly interested as they seek to secure supply for successor to the Kyoto Protocol. their own projects. Similar bottleneck issues affect the solar supply chain and, looking much further ahead, are In Australia, the climate for renewables deals has been likely to be felt in the wave and tidal sector. clouded by uncertainty on whether the proposed emissions trading scheme will be introduced as well as In Europe, the investment required for the wind farm a collapse in renewable energy certificate prices. Policy pipeline, particularly offshore, is likely to increase the responses are already prompting a revival in certificate involvement of new sources of equity in the sector, such prices and this has led AGL to say they will proceed as from investment and pension funds. If conditions with the development of some major wind farms. In this don’t improve, capital recycling might become more respect, the deal environment is more encouraging but it important with projects being refinanced reasonably remains to be seen how the wider issue of emissions quickly to free up funds for subsequent wind farms. In trading can be resolved. Elsewhere, South Korea and such instances, post-construction early operational Japan are actively looking at emissions trading funding would be sought from infrastructure-type schemes. Japan is seeking to cut carbon emissions by a investors and project finance lenders, enabling the quarter from 1990 levels by 2020, triple the previous original build finance to roll-over to new construction. government’s target, but it is less clear that the intended emissions trading scheme will be the main route to Early developers with requirements to secure or to achieving this. contribute significant amounts of capital to develop their projects are likely to find conditions remain challenging. So far, as we discussed earlier, this has not translated Contact us 17 Global Contacts Manfred Wiegand John McConomy Charlotte Rhodes Global Utilities Leader Transaction Services Leader Energy, Utilities & Infrastructure Advisory Telephone: +49 201 438 1517 US Power and Utilities Telephone: +44 207 213 1642 Email: [email protected] Telephone: +1 267 330 2184 Email: [email protected] Email: [email protected] Mark Hughes Olesya Hatop European Leader Jennifer Kreischer Global Energy, Utilities & Mining Marketing Energy, Utilities & Infrastructure Advisory Partner – US Power and Utilities Telephone: +49 201 438 1431 Telephone: +44 20 7804 5767 Accounting Advisory & Financial Reporting Email: [email protected] Email: [email protected] Telephone: +1 267 330 2245 Email: [email protected] Aad Groenenboom European Leader Michael Shewan Renewable Energy Partner – Energy and Utilities Australia Telephone: +31 26 3712 509 Telephone: +61 3 8603 6446 Email: [email protected] Email: [email protected]

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