Powering ahead 2010

Powering ahead: 2010
An outlook for renewable energy M&A

A DV I S O RY

About the research
This report provides an insight into the global M&A activity in renewable energy. The findings
are based on a survey of over 250 senior executives active in the renewable energy industry
worldwide. The survey and report were written in collaboration with VB/Research, a specialist
renewable energy research and data provider. Transaction data and statistics included in the
report have been extracted directly from VB/Research’s databases.
Geographical breakdown of respondents

The survey was conducted between January and March 2010 and was completed
5% 5%
by five different types of respondents – corporates, financial investors, debt
9%
providers, government bodies and service providers. Among the respondents,
75 percent were top-level executives such as chairpersons, senior executives
18% 34%
or divisional heads. Surveyed respondents were split among Western Europe
(33 percent), North America (29 percent) and Asia-Pacific (18 percent), with Eastern
Europe, Middle East and Africa, and South America accounting for the remaining.

29%

To supplement the survey results, interviews were also conducted with the
following senior executives:
Western Europe
North America Areva SA Rabobank International
Asia-Pacific Anil Srivastava, Senior Executive Marcel Gerritsen, Global Head
Eastern Europe Vice President and Chief Executive of Renewable Energy &
Middle East and Africa Officer, Areva Renewables Infrastructure Finance
South America A leading company in the nuclear A provider of diverse financing solutions
power industry, which is also active in for renewable energy projects in Europe,
offshore wind energy, bio-energy, solar Asia and the Americas
power, and hydrogen carrier and energy
Breakdown by type of respondent
storage solutions United Nations Framework
Convention on Climate
Centrosolar Group AG Change (UNFCCC)
6% Thomas Kneip, Vice President, Yvo de Boer, Executive Secretary
7%
Business Development Head of the UNFCCC since 2006 and
A vertically integrated solar photovoltaic Chairman of the Copenhagen Climate
(PV) company based in Germany Change Conference in December 2009;
16% 38%
Yvo de Boer will join KPMG on July 1,
Covanta Energy Corporation 2010 as Global Advisor on Climate and
Allard Nooy, President Asia Pacific Sustainable Development.
33% A global owner and operator of
energy-from-waste and power Definition:
generation projects Mergers & Acquisitions (“M&A”)
All corporate M&A transactions
Corporates: Companies operating within
E.ON Climate and (mergers, acquisitions and minority
the energy sector, or owning a company
(e.g., energy utility firm, oil & gas major, Renewables GmbH investments) as well as private equity
energy producer, energy distributor) Cord Landsmann, transactions such as buyouts, public-to-
Service providers (e.g., investment bank, Chief Financial Officer private deals and secondary buyouts.
financial advisory firm, law firm) The renewable energy and carbon
Investors: Companies investing in the energy sourcing division of E.ON Group, For the purpose of the report, M&A
sector (e.g., private equity fund, infrastructure one of the world’s largest owners transactions until April 14, 2010 have
fund, hedge fund, asset manager) of renewable power projects been tracked.
Government bodies (e.g., internal/
external investment agency, cluster, Hudson Clean Energy Partners
trade organisation)
John Cavalier, Managing Partner
Debt providers: Companies providing debt A global private equity firm, focused on
finance to companies investing or operating
in the energy sector (e.g., overdraft/term renewable power, alternative fuels,
loans, project finance, revolving credit) energy efficiency and storage
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of
independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

Contents

Foreword 1

Executive summary 3

Transaction activity picked up the pace in late 2009 5

Government incentives are fuelling M&A 9

M&A rises to the top of the agenda 17

How long will it remain a buyers’ market? 21

Financing conditions remain demanding 27

Cover image: Courtesy of BARD Group
Description: Erection of the BARD nearshore wind turbine


1 Powering Ahead: 2010 – An outlook for renewable energy M&A

Foreword

Could anyone have envisaged just how much
the market would change since our first report
on M&A activity in the renewable energy
sector in 2008?

Two years ago, the temperature was at boiling point with significant
premiums paid on deals, as major developers sought to establish a position
in the renewables sector. Investors were prepared to pay substantial sums
for portfolios that contained long development pipelines but few operating
assets. Issues around the availability of turbines and silicon, combined with
grid connection and planning delays in some markets, were converging
to create an investment bubble.

When the financial crisis took hold, lenders stepped back from the risky end of the
market. With financing drying up for early-stage development assets and lenders
Andy Cox
working hard to reduce their exposure to the sector, many projects are being
Partner, KPMG in the UK
stalled or even shelved in the face of the capital drought. Deal multiples fell as
Global Head of Energy and acquirers were no longer willing to pay for development pipelines that only offered
Utilities for Transaction Services the potential for hard returns at some point in the distant future. 2009 saw
governments around the world promise major capital injections and a wealth of
incentives. As a result, over the period of this year’s survey, we have started to
see the impact of these stimulus measures on M&A activity.

On a positive note, we have seen a dramatic increase of 145 percent in global deal
volume in Q1 2010 compared with Q1 2009; despite over half of the respondents
finding financing harder. In part, this may suggest that investors are being forced
to increase the proportion of equity in a deal to fund a successful transaction.

Powering Ahead: 2010 – An outlook for renewable energy M&A 2

This is surprising, as the macro-economic certainly attractive factors in its favour firepower of sovereign wealth funds
view seems to suggest that lending is – not least its potential to generate could also hold the key to financing the
becoming easier. While recent headlines greater returns than wind. Although sector but perhaps we might also see
suggest that there are positive signs there is no doubt solar and wind will new interest in renewables from major
that the financial services industry is continue to drive deal activity, our corporates, and not just from the
recovering, this response shows that research suggests that from a global utilities sector. Could the May 2010
it remains fragile. We believe capital perspective, biomass too, will play a announced participation of internet
funding will be the single biggest significant role in investment growth. giant Google in onshore wind in the
challenge for the next decade, with US be the beginning of a new trend?
Of course, the growth in renewables
renewable energy projects competing Whether it is or not, renewable energy
will not happen, if there is no money
for capital alongside a whole range of remains a rapidly changing sector and
to support its development. With fierce
other important infrastructure projects, I believe the results of our survey
competition to gain access to bank
including energy, transport and will continue to provide an interesting
capital and some government programs
healthcare projects. perspective to those who participate
tailing off, everyone is asking the same
and invest in it.
Perhaps the most surprising finding question – where will the capital come
is that survey respondents are now from? Recent conversations I’ve had
seeing biomass as a serious contender with Asian players in countries such as
for investment alongside solar and wind. Japan and Korea suggest that they may
While biomass lags behind wind and be ready to invest heavily around the
solar in terms of maturity, there are world in renewables. The potential


3 Powering Ahead: 2010 – An outlook for renewable energy M&A

Executive Summary
Not sprinting but definitely jogging
The new decade has started on a more positive note, when
compared to how the last one ended. In the first few months
of 2010, the number of completed deals in the renewable
energy sector more than doubled in comparison to the
corresponding period last year.

Surveyed respondents agree that Thank government incentives global energy related CO2 emissions. ”
M&A activity is picking up, with over The disappointing outcome of the Over half of the surveyed respondents
90 percent intending to undertake a Copenhagen Climate Change Conference believe that these initiatives will act as
transaction in the next 18 months. in December 2009 (COP15) is not the principal driver for M&A activity in
expected to have any impact on global the next 18 months. North America,
In terms of completed M&A deals the
M&A activity. As Yvo de Boer, Executive particularly the US, tops the list of
solar sub-sector continues to lead in
Secretary of the United Nations targeted countries for M&A transactions,
2010, with wind following closely
Framework Convention on Climate supported by the American Recovery
behind. Last year, the solar and wind
Change, commented “Despite the and Reinvestment Act (ARRA).
sub-sectors together accounted for
absence of a legally binding agreement, China and India have moved much
approximately 50 percent of the 300
countries will go ahead and implement higher up the target list when compared
completed M&A deals.
plans of their own. This view is supported
” with last year’s survey, bolstered by
Equity capital market activity has also by an overwhelming 88 percent of the stronger incentive programs, along with
started to recover, with optimism most surveyed respondents who believe that a reduction in stimulus by some major
evident in China (since it lifted its IPO the result of the summit will not affect European countries such as Germany
freeze in June 2009) and North America M&A activity worldwide. and Spain.
(where the surveyed respondents are
Many countries have now approved and Other factors that continue to fuel M&A
showing the greatest confidence in
are distributing significant incentives activity in the sector include energy
securing public equity funding).
and stimuli in the form of direct grants, security concerns, fluctuating oil prices,
feed-in-tariffs (FiTs) and/or loan and the availability of renewable
guarantees. According to Yvo De Boer, ”feedstock”. In the background,
“Since the summit, 43 industrialized government-financed clusters are
countries as well as 41 developing nurturing the development of early
nations have submitted national targets stage technology companies and
and action plans to reduce carbon innovators.
emissions on a national level. These
countries represent 80 percent of the


Powering Ahead: 2010 – An outlook for renewable energy M&A

“The companies that
are able to partner or
be acquired will stay,
the others will struggle
to survive.”
Anil Srivastava, Areva SA

There’s still a valuation “gap” Biomass shining through Yet despite these challenges,
There remains consistent with last year Looking at which renewable sub sectors it is interesting to see that the
a significant gap between the valuation are most attractive, the survey has companies with the money to
expectations of sellers and acquirers. found a change in appetite from last support their convictions are
year’s findings with biomass (37 percent) driving biomass forward alongside
Looking forward many industry players
increasing to the same level of appeal their wind and solar portfolios,
and investors expect valuations and
as solar (36 percent) and onshore wind which are arguably easier to deliver
deal sizes to increase this year, although
(35 percent) for corporates and investors. in the short to medium term.
pricing is expected to remain problematic.
Transactions are currently closing at While wind is still recording significant
around 9x historic EBITDA, equating deal activity, our research has shown
to an average discount of about that dealmakers, particularly large
30 percent to 2006 - 2008 valuation companies such as the utilities, are
multiples. However, over two-thirds looking for the next global trend and
of the surveyed corporates do not biomass looks like it is positioned to be
expect to pay more than 5x EBITDA one of the most active sub-sectors for
for renewable energy companies MA in the next 18 months.
or projects.
Biomass plants are capable of yielding
Funding demand outstrips supply higher returns than other renewable
Although banks are keen on the energy sources and operate more
renewable energy sector, securing effectively as a base load power
finance has become harder over the source in comparison to intermittent
past year for over 50 percent of the technologies such as wind and solar.
surveyed respondents. Two of the main
However, the biomass sub-sector still
reasons are: a substantial increase in
faces difficult challenges such as
margins (approximately three times the
securing finance for construction,
average margin offered three years ago)
identifying long term sources of fuel,
and a debt market that is growing less
and the visibility of fuel prices.
rapidly than the sector’s ever growing
financing requirements.

“Despite the absence of a legally binding agreement,
countries will go ahead and implement plans of their own.
”
Yvo de Boer, United Nations Framework Convention on Climate Change (UNFCCC)


5 Powering Ahead: 2010 – An outlook for renewable energy MA

The second half of 2008 and the first few months
of 2009 were challenging for many players in the
renewable energy sector as uncertainty in the
financial markets and the slow pace of economic
recovery made raising capital difficult.

Transaction activity picked up
the pace in late 2009
However, as 2009 wore on, activity in the MA arena and public markets picked
up pace. On the MA front, more and more companies with strong balance sheets
tried to capitalize on attractive valuations and smaller companies’ desperate need
for capital. The year finished with over 300 acquisitions worldwide, totaling over
US$53bn in value.

Over the first three months of 2010, MA deal values declined slightly from late
2009 levels; however, deal volume remained strong. As shown in Figure 1, the
number of deals completed in the first quarter of 2010 (150) is more than double
that in the corresponding period in 2009 (61). In terms of regions, North America
maintained its allure – 46 percent of the announced MA deals (69) involved target
companies based in North America in Q1 2010, compared to 41 percent for the
whole of 2009 (46). Barring any new significant negative development in the
financial markets, all signs point to 2010 being a stronger year for MA activity.

Solar remains the most popular sub-sector and leads in terms of the number
of deals in 2010, with 31 deals recorded up to mid-April. However, in terms of
aggregated transaction value, the wind sub-sector was actually larger during the
same period – US$1.8bn compared to US$1.5bn in the solar sub-sector. This is
largely due to two big Iberian deals, with Enel and Iberdrola recently announcing
investments of €860m and €320m respectively, in wind assets in Spain.


Powering Ahead: 2010 – An outlook for renewable energy MA

Figure 1: Global MA activity

20 160
18 140
16
120
14
12 100

$ billion
10 80
8 60
6
40
4
2 20

0 0
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10
Source: VB/Research Investment (in $ billion) Number of Transactions

In terms of valuation, average multiples equities remains shaky in the American the 70-MW Criterion farm in Maryland
have fallen by around 30 percent between and European markets. More positively, – and Duke Energy’s entry into the solar
2009 and 2010. Between 2006 and 2008, several IPOs in Asia made big headlines market with its January 2010 purchase
some highly priced deals dragged the toward the end of 2009, with the Chinese of the 16-MW Blue Wing project in Texas.
average up, close to 3x historic revenue government ending a nine-month IPO These transactions indicate that US
and 13x historic EBITDA. Transactions freeze on the Shanghai Exchange. federal and state policies are finally
are now priced closer to 2x historic convincing some of the more traditional
While most attention in the renewable
revenue and 9x historic EBITDA as investors and energy firms to turn to
power sector has been focused on big
investors continue to show greater cleaner sources of power generation
European utilities such as Enel and
caution about overpaying. to grow their businesses.
Iberdrola, it is important to mention that
In public markets, green indices were the US, whose wind power capacity One final trend worth noting in 2009
hit hard during 2008 and the first quarter soared by 39 percent in 2009, also was the heightened MA activity
of 2009, with some of them losing as witnessed healthy MA activity among of large industrial corporates.
much as 75 percent of their pre-crisis its utilities. Examples include Kansas- Companies including Robert Bosch
value. While there was some recovery based Westar Energy’s acquisition of GmbH, Areva SA, Bayer CropScience AG,
over the last nine months of 2009, the the development rights to a 500-MW Daewoo International, General Electric,
indices are still faring worse than the wind project from Infinity Wind Saint-Gobain SA, Siemens Energy AG
general market indicators. The first Power in January 2010, utility giant and Royal Philips Electronics acquired
three months of 2010 have not seen any Constellation Energy’s purchase of its renewable energy companies
improvement as investor confidence in first wind asset in November 2009 – during 2009.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the
KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. All rights reserved.


Focus on...
Solar This is due to a combination of over- following the decision to cut solar
MA in the solar sector is being driven capacity among panel manufacturers subsidies in Spain and Germany.
in three ways – market consolidation, and a sharp plunge in global silicon
In 2010, notable solar deals include
to increase the dominance of existing prices, both of which have led to an
Solutia’s acquisition of Etimex, which
players through MAs; technology- unsustainable situation for many
produces plastics for solar panels,
motivated acquisitions; and smaller factory owners. One large
and French nuclear operator Areva’s
downstream acquisitions, to improve player that has capitalized is GCL-Poly
acquisition of Ausra, an Australian
access to the end-user. The solar Energy Holdings, which has transacted
developer that moved to California in
market stands out in this respect with over US$5bn in completed or
2008 to focus on large, utility-scale
24 percent of the total MA deals in announced acquisitions in 2009 and
solar thermal projects. The latter is of
2009 covering technology companies, early 2010. Production cost concerns
particular interest, as an example of a
manufacturers, service providers and will also push developers toward
mature player in the power industry
installers. China, which supplies regions providing low-cost
seeking to expand in the renewable
about half the world’s solar modules, manufacturing solutions, especially
energy sector.
has seen a big share of the action.

Wind generation In the UK, the British Government’s projected capacity of 206-MW) along
In the wind sector, large project buyers 2009 Budget announced a series of with a refinancing of the project. At the
in 2009 and 2010 included Italy’s Enel, support measures aimed at stimulating end of 2009, DONG Energy and Siemens
Spain’s Iberdrola, UK’s Renewable renewable energy projects including Project Ventures acquired a 50 percent
Energy Systems, Ireland’s Bord Gais £525m for offshore wind farms through stake in Centrica’s 270-MW Lincs project.
Eireann and North America’s NextEra the Renewable Obligation scheme. DONG Energy also announced the sale
Energy Resources. Gamesa was also Since this announcement a series of a minority stake in its 367-MW
active, announcing its intention to of transactions have taken place as Walney offshore wind farm project to
acquire a minority stake of German developers have sought to reduce their Scottish Southern Energy. The UK
offshore wind developer BARD in risk and attract third party capital to remains a highly attractive market
February 2010. The German company their offshore wind commitments. boasting potentially the largest wind
recently launched its tailor-made These transactions included investment resources in Europe and a well-defined
installation vessel and is planning to use company TCW’s acquisition in October subsidy regime.
it for its own 5-MW turbines at a 400- 2009 of a 50 percent stake in Centrica’s
MW wind farm in the North Sea in 2010. Boreas portfolio (total installed and

Biofuel Northeast Biofuels, acquired by the capacity to produce about 2 billion
Uncertainty in the US over the Sunoco, and Panda Ethanol’s partially liters of ethanol per annum. The joint
continuation of its tax credits regime, complete plant by Societe Generale. venture should enable these two
which is expected to expire at the end In March 2010, the Renewable Fuels companies to dominate the domestic
of 2010 (and in 2012 for cellulosic Reinvestment Act, seeking to extend Brazilian market and become major
biofuels), has also driven market the US$0.45 per gallon blender credit, global players within the sub-sector.
consolidation in the biofuel sub-sector. was presented to the house members Nonetheless, the success of marketing
VeraSun, which at one point claimed to but has not yet been ratified. Brazilian ethanol globally will depend
be the biggest ethanol producer in the on several factors beyond the
In Brazil, the most significant
US, was forced to seek bankruptcy companies’ control, with the prevailing
announcement in January 2010 was
protection after a rapid decline in corn price of oil and US import tariff
Shell and Cosan’s US$12bn joint
prices, becoming the most prominent restrictions being the most important.
venture (JV). Shell is paying US$1.625bn
casualty in 2009. Valero Energy Other recent entrants in the Brazilian
over the next two years for its share in
emerged as the biggest winner from ethanol market include India’s Shree
the venture, and is also contributing its
VeraSun’s liquidation, acquiring seven Renuka Sugars and North America’s
Brazilian downstream assets and its
different ethanol plants for US$477m Amyris Biotechnologies. Brazil’s cheap
interests in Iogen Energy and Codexis,
(US$0.60 per gallon of operating sugar cane and its well-developed
which are biotech firms that specialize
capacity), reported to represent biofuel infrastructure have played a
in advanced ethanol production. Cosan
only 30 percent of the assets’ large role in attracting big names to
is contributing both its downstream
replacement value. Other bankruptcies its biofuel market.
and production assets, which include
hastened fire sales in 2009, including


Powering Ahead: 2010 – An outlook for renewable energy MA

The table below lists some of the largest transactions tracked during 2009 and the first months of 2010. Only transactions for
which a deal value has been announced have been listed in the table.
Notable MA Transactions – 2010 Year To Date
Target Target Acquirer Acquirer Sector Date Deal value Valuation metrics
country country (US$m)
Cosan Ltd. Brazil Royal Dutch The Biofuels Jan 2010 1,625 N/A1
Shell plc Netherlands
Gamesa’s El Andevalo wind Spain Iberdrola SA Spain Wind Feb 2010 440 1,800 (US$ per kW in operation)
farm (244-MW)
Equipav S.A. Açúcar e Álcool Brazil Shree Renuka India Biofuels Feb 2010 324 N/A1
Sugars Ltd.
Endesa Renovables Spain Enel Spa Italy Wind Mar 2010 1,184 1,350 (US$ per kW in operation)2
(1,460-MW) (mostly)
Etimex Solar GmbH Germany Solutia Inc. USA Solar Mar 2010 326 10.1x EBITDA

Notable MA Transactions – 2009
Target Target Acquirer Acquirer Sector Date Deal value Valuation metrics
country country (US$m)
Endesa renewable portfolio Spain Enel Spa Italy Wind, Feb 2009 3,558 1,690 (US$ per kW in operation)2
(2,105-MW) Hydro
Greatest Joy International China GCL-Poly Energy China Solar Jun 2009 912 N/A1
Ltd. Holdings Limited
Waneta Dam (490-MW) Canada BC Hydro Canada Hydro Jun 2009 729 4,460 (US$ per kW in operation)3
Canadian Hydro Developers, Canada Transalta Corp. Canada Hydro, Jul 2009 1,470 2,250 (US$ per kW in operation)3
Inc. (700-MW of operational Wind,
assets) Biomass
Turkish wind farm portfolio Turkey Renewable Energy UK Wind Oct 2009 1,107 2,200 (US$ per kW in late
(500-MW) Systems Ltd. development)
Elkem AS hydro plants Norway Norsk Norway Hydro Oct 2009 1,033 2,995 (US$ per kW in operation)
(350-MW) Vannkraftproduksjon
AS
Apollo Precision Ltd. China RBI Holdings Ltd. China Solar Oct 2009 539 N/A1
SWS Natural Resources Ireland Bord Gais Eireann Ireland Wind Dec 2009 755 14.3x EBITDA
Moema Group Brazil Bunge Ltd. USA Biofuels Dec 2009 896 6.90 (US$ per gallon of annual
(5 Sugar mills, 130-MGY) operating capacity)

Source: VB/Research
1
The relevant information was not available at the time the deal was announced.
2
Enel purchased a 60 percent stake. The valuation multiple has been calculated on the basis of an implied
100 percent acquisition.
3
Transalta ultimately ended up purchasing a 93.5 percent stake in November 2009. The valuation multiple
has been calculated on the basis of an implied 100 percent acquisition.
Biomass and Clean Coal
Rounding up recent power generation
deals, Greenspark Power Holdings, Wind technology
a subsidiary of the Australian private This sub-sector has been impacted Hydro
equity firm Pacific Equity Partners, by weakening demand in the wind The more mature forms of renewable
acquired a 79.6 percent share of turbine market. The deep backlogs in generation, such as wind and hydro,
the power plant operator Energy turbine orders that were commonplace have also witnessed an increase in
Developments Ltd., which generates in early 2009 have been replaced by MA activity in the second half of
600-MW of worldwide capacity from rapidly shrinking orders as developers 2009 and early 2010. On the hydro
waste coal mine gas, compressed struggled to obtain financing for their front, several large transactions were
natural gas and landfill gas. In the US, projects. Industry players reacted announced in Canada by companies
Arch Coal obtained a 35 percent equity swiftly to this trend. For example, such as BC Hydro in June 2009
interest in the 600-MW Trailblazer Iberdrola divested 10 percent of its (CAD$825m) and Transalta Corp. in
Energy Center project from Tenaska. holding in Gamesa for over €391.7m July 2009 (CAD$754m). In addition,
Trailblazer will be one of the world’s in a private placement in June 2009. the Canadian Brookfield Renewable
cleanest coal plants, capturing 85 – 90 Later in the year, AE Rotor received Power Fund, formerly known as
percent of the carbon dioxide produced £224m for its 35 percent share in Great Lakes Hydro Income Fund,
in combustion and then piping the gas Hansen Transmissions, while United acquired 15 hydroelectric plants from
for use in enhanced oil recovery at a Technologies acquired a 49.5 percent Brookfield Renewable Power Inc. in
nearby oil field. stake in Clipper Windpower for £166m. July 2009 for CAD$945m.



Although a global agreement on emission targets
was not achieved at COP15 in December 2009,
the lack of a binding agreement is unlikely to
discourage corporates and investors from investing
further in the renewable energy sector.

Government incentives are
fuelling MA
Among the surveyed respondents, an overwhelming 88 percent believe that the
result of the summit will not directly affect MA activity worldwide.

Anil Srivastava comments, “I believe [the lack of outcome of COP15] will mainly
impact the number of projects in emerging countries, which will decrease, and
affect the broader development of renewable energy generation projects worldwide. ”
This is despite an agreement during the summit to provide US$30bn in short-term
financing to support developing countries. “The key question, says Yvo de Boer “
”
is how will these funds be delivered and how will the money be put back into
greening the economy? A clear financial architecture has to be defined. In addition
the role of financial institutions such as The World Bank has to be clarified.
”

Regional climate change concerns, energy security issues and economic rationale
are all prompting developed countries to provide the renewable energy sector with
a range of increasingly differentiated incentives and grants. According to Yvo de Boer,
“Regions and countries have to do what they can on a regional and country basis.
A global agreement is the last resort, i.e. when it cannot be avoided. The slimmer
the international agreement, the better!”


Powering Ahead: 2010 – An outlook for renewable energy MA 10

“Regions and countries have to do what they can
on a regional and country basis. A global agreement
is the last resort, i.e. when it cannot be avoided.
The slimmer the international agreement, the better!”
Yvo de Boer, United Nations Framework Convention on
Climate Change (UNFCCC)

Significantly over half of the surveyed These government initiatives will also as indicated by 54 percent of those
respondents predict that these regional drive cross-border MA activity. surveyed (see Figure 2). Since the
regulations and tariffs will actually Countries with attractive incentives beginning of 2010, 46 percent of the
accelerate MA activity during the next will enhance their appeal to foreign announced MA deals (69) have
18 months. At the sub-sector level, corporates and investors, who are involved companies based in North
these incentives will also have a increasingly looking for scale and a America, up from 41 percent (46 deals)
profound impact on MA. As Thomas global footprint. Surveyed respondents in 2009.
Kneip, Vice President of Business strongly agree – over 65 percent of
Compared with last year’s survey,
Development at Centrosolar Group, the corporates and investors based
India (36 percent) and China (34 percent)
comments, “In the photovoltaic in North America or Europe intend to
are increasingly being targeted by
industry, MA activity is largely driven invest or acquire a renewable energy
companies considering acquisitions
by valuation and country specific company or project outside their own
(2009: India – 23 percent and China –
regulations. For example, the US, India region in the next 18 months.
22 percent).
and China have developed important
In line with last year’s survey, North
stimuli packages to support the
America is forecast to attract a majority
industry.”
of active investors and acquirers globally,

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the
KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. All rights reserved.


Focus on...

North America • Earmarking of grants, loans and loan Canada has also undertaken several
The American Recovery and guarantees from the Department of initiatives such as the launch of a
Reinvestment Act (ARRA), which Energy (allocated since mid-2009), CAD$1bn Clean Energy Fund by the
came into effect in early 2009, and including a loan guarantee program Canadian government to invest in
subsequent incentives and stimulus of US$30bn; major support includes large-scale carbon capture storage
have made North America the preferred a US$249m grant for A123 Systems pilot projects and smaller-scale pilot
geography for acquisitions of renewable and a US$1.37bn loan guarantee for projects of renewable and alternative
energy projects or companies. Almost BrightSource Energy energy technologies (May 2009).
half of European and a third of Asia- This is in addition to Ontario’s Green
• State-led plans, such as California’s
Pacific respondents are considering Energy and Green Economy Act
decision in September 2009 to
acquisition targets in North America (passed in May 2009), which supports
increase its percentage of energy
in the next 18 months (see Figure 2). a range of renewable energy, energy
consumption from renewable
The largest share of respondents efficiency and smart grid projects,
energy sources to 33 percent by
(36 percent) specifically stated that including the adoption of a FiT program.
2020, following an executive order
they are motivated by local government This program is similar to other FiT
from the Governor, and a grant
incentives (see Figure 3). schemes in European countries and
of US$40m allocated by ARRA to
covers solar, wind, water, biomass,
Although the Clean Energy and renewable energy initiatives in the
biogas and landfill gas.
Security Act (ACES), which would state of Virginia in October 2009
introduce a carbon cap-and-trade
• An increase in the required volume
scheme and federal Renewable Energy
of biofuel to be blended into
Standard, is still pending approval by
transportation fuel from a base of
the Senate, recent initiatives continue
9 billion gallons in 2008 to 36 billion
to confirm the US Government’s ongoing
gallons by 2022 (approved by the
support for the sector.These include
Environmental Protection Agency
in February 2010).

Figure 2: In which of these countries do you envisage your company investing in renewable
energy projects or companies in the next 1 months? (Respondents: Corporates and Investors)

North America 54% 88%
Other West 45% 39%
European countries
Middle Eastern 37% 37%
North African countries
Germany 37% 39%

India 36% 34%
United Kingdom 39%
Ireland 34%

China 34% 32%
Other Asia-Pacific 34%
countries 31%
East European 26% 27%
countries Russia
Other 22% 20%

Worldwide respondents North American respondents

North America
Source: VB/Research 48% 33%
Other West 66%
© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. 33%
Member firms of the KPMG network of
European countries independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.


Figure 3: What is the main reason for your company’s expected investments in these regions in the next 1 months?
(Respondents: Corporates and Investors)

100%
Availability of renewable energy
90% Competitiveness
Other
80%
Market demand
70% Government incentives
60%

50%

40%

30%

20%

10%

0%
North America India United Kingdom China
Ireland Source: VB/Research

India the installation of 20-GW of solar the creation of a competitive
Other West 45% 39%
While Western European countries
European countries energy (both photovoltaic and solar environment for solar energy
such as Germany
Middle Eastern have recently thermal) capacity by 2022. It is one of development, 37%leading to 20-GW
37%
North African countries reduce their
announced plans to eight national programs the Indian of power, which is planned by the
Germany
subsidies, other countries, including 37%
Government intends to deploy as part end of the third39%
phase in 2022.
India have increased their incentive of its National Action Plan on Climate This supplements the existing
India 36% 34%
programs. In September 2009, Change. This plan will be developed in Electricity Act 2003 and National
United Kingdom 39%
India’s Central Electricity Regulatory
Ireland 34%
three phases. The first phase, running Tariff Policy 2006, which make
Commission announced the launch of up to 2013, will focus on installing provisions for state and central
China 34% 32%
a FiT scheme for renewable energy solar thermal systems and promoting electricity boards to buy grid-based
Other Asia-Pacific 34%
projects, including wind and solar
countries 31%
off-grid systems to serve communities power from renewable sources.
energy. The Solar India Initiative,
East European without access to grid infrastructure.
26% 27%
announced Russiathe year, targets
countries later in The second phase, up to 2017 involves
,
Other 22% 20%

Worldwide respondents North American respondents

Other West
European countries 66% 33%
North African countries
Germany 48% 29%

India 32% 71%
United Kingdom
Ireland 45% 24%

China 41% 43%
Other Asia-Pacific
countries 25% 52%
East European 32%
countries Russia 29%

Other 11% 29%

European respondents Asia-Pacific respondents

Source: VB/Research



“The central Government in China has committed to
significant renewable energy generation targets.
By 2010, 10 percent of the total energy generation mix
is expected to come from renewable energy sources.
As of today, the country is close to reaching this target.
”
Allard Nooy, Covanta Energy Corporation

China • The Golden Sun initiative, launched
Over 40 percent of the surveyed in June 2009, which aims to install
European corporates and investors 500-MW of solar electricity across
and a third of North American China over the next three years.
respondents are considering Chinese Under this initiative, the Government
acquisition targets in the next 18 will subsidize 50 percent of the total
months (see Figure 2). Recent investment cost per project as well
regulations have increased China’s as relevant power transmission and
attractiveness to non-domestic distribution systems to connect
corporates and investors. Allard Nooy, them to the grid
President, Asia-Pacific, at Covanta
• A plan to increase solar capacity by
Energy, comments, “The central
2011 by the local Government of
Government in China has committed
Beijing (late 2009) by developing a
to significant renewable energy
promotion program for new energy.
generation targets. By the end of
This includes developing solar
2010, 10 percent of the total energy
power infrastructure for the city,
generation mix is expected to come
which would be capable of producing
from renewable energy sources. As of
up to 70-MW of solar power
today, the country is close to reaching
this target. Examples include
” • The introduction of a standardized
FiT for wind farm projects approved
• Solar subsidies for new solar
since August 1, 2009.
installations larger than 50-kW
(March 2009), with a priority on
building integrated photovoltaics



United Kingdom • A suite of FiTs for small scale, low- the Government announced several
European respondents slightly favor carbon electricity installations of up measures to support offshore
North America (48 percent) as a target to 5-MW which became effective renewable energy, including £60m
region for MA activity over the UK in April 2010, along with a plan for for the development of port sites
Ireland (45 percent). Interestingly, a renewable heat incentive to be to host offshore wind turbine
Figure 2 indicates that the UK introduced in April 2011 manufacturers as well as a £2bn
Ireland and China ranked at the same Green Investment Bank. This will be
• £60m in funding to build wave and
level in terms of attractiveness for invested in renewable energy, with a
tidal testing facilities to pilot new
MA transactions. focus on offshore wind and green
technologies in strategic parts of
transport schemes. Despite this,
A few months after an announcement the country
the largest share of respondents
in the 2009 budget to allocate £1.4bn
• Up to £120m to support the growth (33 percent) who selected the UK
to clean technologies and renewable
of an offshore wind industry. Ireland cited public demand for greater
energy, including £525m for offshore
In addition, £8.6bn was announced provision of renewable energy as the
wind farms through the Renewable
in May 2009 to equip every home main driver, ahead of government
Obligation scheme, the UK
in Britain with smart meters by the incentives (see Figure 3).
Government proposed a Low Carbon
Transition Plan in July 2009 including end of 2020. In late March 2010,

“We aim in the long run
to achieve grid parity
without subsidies.
...we would not choose
locations with poor or
uncertain access to
the energy source,
even though they
could benefit from
important incentive-
based regimes. ”
Cord Landsmann, E.ON Climate
and Renewables GmbH



Other Asia-Pacific countries
Large energy importer South
Korea announced a considerable
US$84.5bn investment plan in July
2009 to support environment-related
industries and set its greenhouse
gas emission reduction target at
30 percent by 2020. Although the
country proposed plans to decrease
subsidies in August 2009 for large-
scale solar systems and reduce
subsidized solar power caps, South
Korea continues to reiterate its plan
to play a major role in the renewable
energy sector. Early this year, the
South Korean government announced
a smart grid plan to support the
development of smart electricity
grids with funding up to US$24bn.

Australia’s extensive renewable
energy resources are largely
undeveloped (with the exception
of hydro and wind). Nevertheless,
the country, in its 2009 budget,
announced a A$4.5bn Clean Energy
Initiative to support the development
of renewable energy, including
A$1.4bn to support the Solar Flagship
Program to fund the construction
of large-scale, grid-connected solar
power stations using solar thermal
and photovoltaic technologies.
The program aims to build up to
1,000 megawatts of solar power
generation capacity to provide a
large scale market demonstration of
the potential of solar energy to be
constructed and operational within a
major electricity grid. Together with
the Australian Government’s recent
announcement in March 2010 to
enhance the Renewable Energy
Target to further encourage the
deployment of large scale renewable
power generation, these initiatives
will assist to deliver on the 20 percent
(or 41,000-GWh) target by 2020.



Non government MA drivers sustainability and climate change
Although government incentives make agendas by improving their products
a substantial impact on the direction and services. ”
of investments, their limited duration
Acquisition strategies are also closely
is an important factor that should be
associated with building market share.
considered. As Cord Landsmann,
The largest share of respondents
Chief Financial Officer at E.ON
interested in Middle Eastern and
Climate and Renewables GmbH, notes,
North African targets (33 percent)
“Businesses are under “We aim in the long run to achieve
cited public demand for greater provision
pressure to hold with grid parity without subsidies. ...we
of renewable energy as the main
would not choose locations with poor
the sustainability and driver for investment and MA
or uncertain access to the energy
climate change agendas source, even though they could
activity in the region.

by improving their benefit from important incentive-based MA deals will also be boosted by
products and services. ” regimes.” Other drivers of cross- financial backers looking to exit their
border MA in the sector include current portfolio companies. Venture
Yvo de Boer, United Nations capital investors who reached their
energy security in the form of reliable
Framework Convention on
Climate Change (UNFCCC) energy supply and secure production investment limit during the downturn
facilities; volatile fossil fuel prices; by providing follow-on financing to
market consolidation; and increasing their portfolio companies, and funds
demand within society for a renewable/ that were raised over five years ago
alternative energy supply. As Yvo de are desperately looking to exit some
Boer points out, “Businesses are of their investments. With the IPO
under pressure to hold with the market still fragile, MA is the most
attractive exit route.

Additional incentives government and trade organizations
Sixteen government and trade collaborate with well-established
organizations were surveyed this private and public companies,
year, among which 7 were based in which fuels partnerships between
Western Europe, 5 in North America innovators and more established
and 4 in the Middle East North Africa. operators. Most surveyed government
participants cooperate with utilities
Most of these organizations nurture
and Independent Power Producers
small businesses in “clusters.”
(88 percent), as well as specialist
Examples include the National
renewable energy companies or
Renewable Energy Lab in the US,
subsidiaries of integrated utilities
the Vancouver Fuel Cell Cluster in
(75 percent). For example, the
Canada, “Silicon Fen” in the UK and
Copenhagen Cleantech Cluster,
the Copenhagen Cleantech Cluster
launched in late 2009, comprises 40
in Denmark. Among the surveyed
companies, including DONG Energy
government organizations, the four
and Vestas. The Finnish Cleantech
most common services offered to
Cluster is partnering with Yes Bank
businesses are accelerated access to
in India to create cross-border
strategic vendors; subsidy and grant
partnership opportunities.
schemes; mentoring; and funding.
To achieve their objectives, most



After a year on the sidelines, corporates and
investors have regained confidence and are
now actively looking to make acquisitions in
2010 in the renewable energy sector. More than
90 percent of surveyed respondents are
considering MA activity in the next 18 months.

MA rises to the top of
the agenda
Last year, 45 percent of the surveyed respondents were either not planning to make
any acquisitions during the following 12 months or were undecided. During the first
quarter of 2010, 150 transactions with a combined value of US$14.3bn were announced,
compared with 61 deals representing US$8.8bn during the first quarter of last year
(see Figure 1). This momentum is expected to be maintained in 2010, with companies
continuing to announce acquisition plans on the back of prior-year profits, in parallel
with a fundraising and in some cases to counterbalance disappointing trading.
Recent examples include Boralex Inc., the Canadian diversified renewable energy
company, which intends to pursue its acquisition strategy throughout 2010 along
with obtaining financing and developing projects; and Schneider Electric SA,
which intends to maintain its acquisitions strategy despite a 49 percent decline
in profitability in 2009.

Inorganic growth through acquisitions will essentially be twofold: technology-
motivated, driven by technology or manufacturing conglomerates’ intent on
entering or expanding their activities in the sector and establishing an end-to-end
solution or service; and client-side motivated, to get closer to the end-user.
Both types of transactions are set to intensify. As Thomas Kneip notes, “Corporates,
already active in the renewable energy sector, will seek to integrate horizontally
for geographical expansion or downstream to get access to installers and
system integrators. ”


Powering ahead 2010

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