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Power transactions and trends Q1 2019

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In 2019, we saw evidence of the impact of economic headwinds on overall mergers and acquisitions (M&A) activity, with global deal value declining 33% from Q4 2018 to US$20.6b. Deal value increased in the renewables and water and wastewater segments quarter on quarter while decreasing in the remaining segments.

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Power transactions and trends Q1 2019

  1. 1. Power transactions and trends Q1 2019
  2. 2. Contents Global summary Americas Europe Asia-Pacific Africa and the Middle East Appendix
  3. 3. Power transactions and trends Q1 2019 Global summary US$20.6b US$12.7b Renewables US$9.1b Americas Global deal value Largest segment Largest region 127Total deals Q1 Chart 1: Global P&U deal value and volume by segment (announced asset and corporate-level deals, Q1 2017–Q1 2019) Chart 2: Global P&U deal value and volume by region (announced asset and corporate-level deals, Q1 2017–Q1 2019) Page 3 Note: All transaction information is EY analysis with data sourced from Mergermarket and S&P Global Market Intelligence. 0 20 40 60 80 100 120 140 0 20 40 60 80 100 120 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Dealvolume(numberofdeals) Dealvalue(US$b) Generation Integrated utility Energy services Renewables Gas utility Water and wastewater Volume 0 20 40 60 80 100 120 140 0 20 40 60 80 100 120 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Dealvolume(numberofdeals) Dealvalue(US$b) Americas Asia-Pacific Europe Africa and Middle East Volume
  4. 4. Renewables drive deal value and volume Global summary Demand for renewables drives M&A activity Q1 2019 saw 56% — 71 of 127 — deals involve renewables, which contributed a total value of US$12.7b (61% of total deal value). Europe led the activity with US$5.4b, or 42.5%, of total renewables deal value. Financial sponsors and strategics are firmly committed to renewable energy investments driven by market potential, customer preference and corporate sustainability goals, resulting in a significant pool of investment capital. In 2019, we saw evidence of the impact of economic headwinds on overall mergers and acquisitions (M&A) activity, with global deal value declining 33% from Q4 2018 to US$20.6b. Deal value increased in the renewables and water and wastewater segments quarter on quarter while decreasing in the remaining segments. Across all regions, a few trends emerged: Governments continue to push for more clean energy Governments around the world continue to promote clean energy policy. In Europe, Greece and France announced new energy plans promoting renewables growth, while in the US, local government continues to drive renewables progress. New Mexico recently joined California, Hawaii, Washington, DC and Puerto Rico to set a 100% carbon-free goal. In Asia-Pacific, India has set a target of 100 GW of solar power by 2022. Corporates and utilities drive development of renewables France’s ENGIE announced it would add another 9 GW of renewable capacity by 2021, while Italian energy giant Enel announced plans to spend 80% of its US$30b capital expenditure through 2021 on renewables and grid operations. In the US, over 200 companies, including Facebook and Alphabet’s subsidiary, Google launched the Renewable Energy Buyers Alliance with the goal to bring 60 GW of new renewables online in the US by 2025. Interest in offshore wind is on the rise Development of offshore wind capacity has accelerated with Australia, Japan, China, Korea, India and the Netherlands all recently announcing new projects. In the second largest deal of the quarter, German asset manager Commerz Real joined consortium members to buy an 80% stake in 402 MW German offshore wind farm Veja Mate for US$2.6b. The US offshore wind market is at the cusp of a tipping point as interest in offshore leases continues to grow. Page 4 Increasing convergence as oil and gas (O&G) majors enter the sector Investment by O&G companies into the P&U sector is rising across all regions, increasing sector competition. Shell’s New Energies division made two strategic acquisitions as they continue to take steps towards their target of becoming the world’s largest electricity company by 2035. Our CCB report revealed that O&G is the sector that executives expect to see the most convergence or blurring of sector boundaries — this trend will continue to influence M&A dynamics in 2019. Investment challenges for the fossil fuel industry The Norwegian Government proposed the phaseout of oil and gas exploration and production companies from its US$1t sovereign wealth fund. The German Government announced plans to shut all of its 84 coal-powered plants by 2038 and replace them with renewable energy plants. In the US, a federal judge dismissed a lawsuit that sought to force an Arizona water agency to buy electricity from a local 2.3 GW Navajo coal plant. The plant may be forced to close by the end of the year.
  5. 5. Quarterly investment profile Americas Europe Asia-Pacific Africa and the Middle East US$9.1b deal value, 35% decrease from US$13.9b in Q4 2018. US$3.7b deal value in renewables assets. US$6.8b deal value, 27% decrease from US$9.3b in Q4 2018. US$5.4b deal value in renewables assets. US$4.1b deal value, 45% decrease from US$7.4b in Q4 2018. US$3.6b deal value in renewables assets. US$0.6b deal value in Q1 2019. Renewables investment continues, with increasing focus on off-grid solutions. Q1 2019 at a glance Investments in smart technologies boosted by government support. Partnerships between financial sponsors and strategics are on the rise. French and Greek Governments announced plans to increase renewables investments. Hong Kong-based privatization deal dominated activity. Global summary Page 5
  6. 6. Q1 2019 at a glance (continued) Global summary Page 6 Capital outlook Americas Europe Asia-Pacific Africa and the Middle East Utilities and corporates will continue to push investment in renewables. Investment in battery storage will ramp up as utilities plan big-ticket projects. Utilities’ decarbonization plans will drive investment in renewables. Signs that the EU could miss its 2030 renewables and energy savings goals may increase the need for renewables investment. Policy support will keep Bangladesh an investment hotspot for renewables. Investments in EVs will accelerate, supported by policy support across India and New Zealand. Foreign and government investment in renewable energy development will continue. Investment in off-grid solutions will increase, bridging the gap between power demand and supply. Energy reforms will continue amid a challenged economic environment. Activity in Latin America will increase, driven by investment in infrastructure and asset sales led by US and European utilities. Electric vehicle (EV) investment will be boosted by tighter CO2 emission caps and planned investments by utilities. Reforms in Thailand’s behind-the- meter segment will boost investment in distributed solar.
  7. 7. Global capital flows — Q1 2019 Investment activity globally by country, Q1 2019 (US$b) Targetcountry • Greater China was the top global investor for the quarter, investing US$3.4b domestically and US$0.9b overseas. • The UK was the top outbound investor, investing US$1.9b in foreign countries, including US$0.7b in Mexico and US$0.5b in Luxembourg. • The US continued to attract the most investment, with investments domestically and inbound from Canada and the UK. Capital flows Global summary 0–5 5–10 10–20 20–30 Page 7 US Greater China Germany Canada Luxembourg UK Rest of the world Total receipts US 2.4 1.3 - 0.2 0.3 4.2 Greater China 3.4 3.4 Germany 2.6 2.6 Canada 0.5 1.8 2.3 Luxembourg 0.5 1.1 1.6 UK 0.8 0.3 1.1 Rest of the world 0.1 0.9 1.2 3.2 5.4 Total investment 3.0 4.3 2.6 3.1 2.7 4.9 20.6 Note: Numbers may not add to total due to rounding. Investor country
  8. 8. Global returns 1The EY Global Utilities Index benchmarks the returns of 229 utilities globally using data sourced from S&P Capital IQ and other publicly available information. For a comprehensive list of utilities contained within the analysis, please refer to the appendix. • Q1 saw global markets rally after their decline in value in Q4 2018. The S&P Global 1200 gained 13.7% this quarter compared to a decline of 13.1% in the prior quarter. • The EY Global Utilities Index1 underperformed the market, returning 10.9%. The risk of rising interest rates may have impacted the performance of the sector relative to total global returns. Utilities gain value in tandem with global market growth Global summary Page 8 Quarter-to-date TSR TSR in % (from 1 January 2019 to 31 March 2019) S&P Global 1200 13.7 EY Global Utilities Index 10.9 80% 85% 90% 95% 100% 105% 110% 115% 120% 01/01/2019 08/01/2019 15/01/2019 22/01/2019 29/01/2019 05/02/2019 12/02/2019 19/02/2019 26/02/2019 05/03/2019 12/03/2019 19/03/2019 26/03/2019 Chart 3: Total shareholder return – global comparison S&P Global 1200 TSR (%) EY Global Utilites Index TSR (%)
  9. 9. Regional TSR QTD TSR TSR in % (from 1 January 2019 to 31 March 2019) Americas S&P 500 14.8 EY Americas Utilities Index 14.5 Europe STOXX Europe 600 12.4 EY Europe Utilities Index 8.4 Asia-Pacific Nikkei 225 9.6 EY Asia-Pacific Utilities Index 8.2 Americas The QTD TSR of the EY Americas Utilities Index2 was 14.5%, which is lower than the regional market (as benchmarked by the S&P 500 index), which returned a quarterly TSR of 14.8%. However, the EY Americas Utilities Index outperformed Europe and Asia-Pacific (QTD TSR of 8.4% and 8.2%, respectively). Valuations The QTD TSR of the EY Europe Utilities Index was 8.4%, which is significantly lower than the QTD TSR for the European benchmark index STOXX Europe 600, which returned 12.4% for the quarter. The EY Asia-Pacific Utilities Index performed slightly lower than the Nikkei 225, the Asia- Pacific regional benchmark index. Asia-Pacific utilities returned 8.2% QTD compared with the market at 9.6%. The QTD return of the EY Asia- Pacific Utilities Index was the lowest of all regional EY utilities indices. 2EY analysis is based on data sourced from S&P Capital IQ and other publicly available data. The EY Americas Utilities Index benchmarks the returns of 101 utilities headquartered in the Americas, the EY Europe Utilities Index benchmarks the returns of 54 utilities headquartered in Europe, the EY Asia-Pacific Utilities Index benchmarks the returns of 73 utilities headquartered in Asia-Pacific. For a comprehensive list of utilities contained within the analysis, please refer to the appendix. American utilities performed significantly better than their global peers Europe Asia-Pacific Page 9 Global summary 85% 90% 95% 100% 105% 110% 115% 01/01/2019 15/01/2019 29/01/2019 12/02/2019 26/02/2019 12/03/2019 26/03/2019 Chart 4: Total shareholder return — regional comparison S&P 500 TR (total return) % EY Americas Utilites Index TSR (%) Stoxx Europe 600 TR (total return) % EY Europe Utilites Index TSR (%) Nikkei 225 TR (total return) % EY Asia-Pacific Utilites Index TSR (%) STOXX Europe 600 TR (total return) %
  10. 10. TSR and valuations segment dashboard Americas • Generation’s TSR was the highest performing in the region, and this segment outperformed the broader market, a continued trend from Q4 2018. The water and wastewater segment TSR was the lowest of all segments in Q1 across the Americas. • The large market capitalization integrated segment and the medium and small market capitalization segment TSR performed better than in other regions. • The Americas utilities EV/FY2 EBITDA sector traded at 10.7x, the highest of all the regions, with water and wastewater assets valued at the highest multiple of 13.6x for Q1. Europe • The renewables segment QTD TSR was the highest performing of the region (15.6% TSR QTD), while the generation segment TSR performed the worst (2.4% TSR QTD). This is a reversal from Q4 2018 performance. • The water and wastewater segment TSR performed worse than in other regions but remains valued above the EY Europe Utilities Index average at 8.5x EV/FY2 EBITDA compared to 7.3x EV/FY2 EBITDA. • The European utilities sector was valued at the lowest EV/FY2 EBITDA multiple during Q1 across all regions. The renewables and gas utility segments traded at the highest valuation across Europe. Asia-Pacific • Renewables were the highest performing QTD TSR segment in the region, after the poor performance in Q4 with -7.2% returns. • The generation segment was the lowest performing segment across the sector and region with QTD TSR of -0.6% in contrast to 11.3% TSR in the prior quarter. • The Asia-Pacific utilities sector EV/FY2 EBITDA traded at 10.3x. The gas utility segment traded at 14.8x EV/FY2 EBITDA, highest across all the other regional segments. Note: EY analysis is based on data sourced from S&P Capital IQ. Please see the appendix for the detailed definitions, the company segment definitions and the company tagging for the valuations analysis. Large market capitalization integrated Medium and small market capitalization integrated Gas utility Generation Renewables Water and wastewater EY Americas Utilities Index Q1 QTD TSR TSR in % (from 1 January 2019 to 31 March 2019) Large market capitalization integrated Medium and small market capitalization integrated Gas utility Generation Renewables Water and wastewater EY Europe Utilities Index Large market capitalization integrated Medium and small market capitalization integrated Gas utility Generation Renewables Water and wastewater EY Asia-Pacific Utilities Index EV/FY2 EBITDA (At 31 March 2019) TSR >20% higher than the regional sector average; EV/FY2 EBITDA >20% discount compared with the regional sector average TSR 0% to 20% higher than the regional sector average; EV/FY2 EBITDA between a 0% to 20% discount compared with the regional sector average TSR 0% to 20% lower than the regional sector average; EV/FY2 EBITDA between a 0% to 20% premium compared with the regional sector average TSR performance >20% lower than the regional sector average; EV/FY2 EBITDA >20% premium compared with the regional sector average Global summary Page 10 2.2% 6.3% 8.7% -0.6% 27.6% 14.1% 8.2% 9.3% 4.0% 12.1% 2.4% 15.6% 8.4% 8.4% 10.7x 13.6x 11.7x 8.3x 11.1x 9.6x 10.5x 7.3x 8.5x 9.1x 5.7x 9.8x 5.0x 7.5x 10.3x 9.9x 12.5x 7.8x 14.8x 10.4x 8.3x 11.7% 15.0% 14.0% 25.7% 17.7% 9.0% 14.5%
  11. 11. EY Global P&U TAS Leader EY Global P&U TAS Resident TAS Senior Manager EY Global P&U Analyst EY Global Transaction Advisory Services P&U contacts Miles Huq Sara Richardson Mike C Morse Anjushi Joshi +1 410 783 3735 miles.huq@ey.com @MilesHuq +61 7 3243 3758 sara.richardson@au.ey.com @sararichardson2 +1 410 234 4330 michael.c.morse@ey.com +91 124 619 2734 anjushi.joshi@gds.ey.com @anjushi_joshi Global summary Page 11
  12. 12. Americas Renewable energy drives deal volume
  13. 13. Power transactions and trends Q1 2019 Americas Certain utilities are changing their thinking to ensure they are not getting left behind by focusing on renewable and emerging technology investment. Financial sponsors have a large pool of capital and are eager to engage. Miles Huq, EY Global P&U TAS Leader deal value, 35% decrease from Q4 2018 US$9.1b US$3.7b contributed by renewables asset M&A, dominated by seven multimillion-dollar deals Transaction highlights Financial sponsors focus on renewables • Kohlberg Kravis Roberts & Co. L.P. (KKR) agreed to make a US$900m equity investment in NextEra Energy Partners to facilitate the acquisition of a 611 MW renewables portfolio. Shareholder activism continues • Sempra continued its process of simplifying its business structure by selling 724 MW of operating wind and battery assets to AEP for US$1.1b. The deal follows Sempra’s US$1.5b sale of renewables assets to Consolidated Edison last year. Chinese renewables investment targets Latin America • In the largest deal of Q1 in Latin America, Chinese-based CGN Energy International agreed to acquire wind and solar projects totaling 540 MW combined capacity from Enel for US$783m. Overall, Latin American countries attracted US$2.4b or 26% of Americas power and utilities (P&U) investment this quarter. Corporate distress and restructuring drive divestitures • Canadian utility ENMAX acquired US electricity network utility Emera Maine from Emera Inc. for US$1.3b. The deal furthers Emera Inc.’s strategy to reduce debt and support its US$4.9b regulated capital expenditure program. Also this quarter, GE continued restructuring, selling its stake in several wind farms to Enel for approximately US$250m. Chart 5: Americas deal value and volume by segment (announced asset and corporate-level deals, Q1 2017–Q1 2019) “ Page 13 0 10 20 30 40 0 10 20 30 40 50 60 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Dealvolume(numberofdeals) Dealvalue(US$b) Generation Integrated Energy services Renewables Gas utility Water and wastewater Volume
  14. 14. Americas Renewables and emerging technology drive the capital agenda • In March, the New Mexico State House passed the Energy Transition Act requiring 100% carbon-free generation by 2045. The state joins Hawaii, California and Washington, DC, which all have 100% renewables targets. In late March, Puerto Rico’s legislature also approved a 100% renewable energy target by 2050. Another 100% renewable portfolio standard (RPS) goal Page 14 • Duke Energy filed a US$76m plan to develop electric vehicle (EV) charging infrastructure in North Carolina. Michigan utility Consumers Energy introduced a US$10m, three-year plan to incentivize deployment of EV charging stations in the region. In Atlanta, Georgia Power announced plans to set up a 1.4 MW microgrid with Georgia Institute of Technology. More investment in new technology • Increased shareholder activism, mainly driven by Elliott Management and Bluescape Resources, has resulted in billions of asset divestments, most recently at Sempra, which has divested approximately US$2.5b of renewable and natural gas storage assets. • In addition, rising corporate distress in Canada and the US has led to asset sales to strengthen balance sheets. Asset divestments continue Clean energy will develop into a large and stable market, attracting investment beyond current expectations — from both corporate and financial sponsors. Miles Huq, EY Global P&U TAS Leader “
  15. 15. We expect US corporate buyers to take the lead in domestic M&A as they grapple with the ongoing changes in the power and utilities sector. Facing flat load growth and a rapidly changing environment, small to midsize utilities appear ripe for consolidation. Miles Huq, EY Global P&U TAS Leader 46% of total Americas investment occurred in the US. 90% of these transactions were conducted by corporates, with more than half (57%) domestic buyers. 53% (US$4.8b) of all regional deals were domestic. Deal value dropped, but the US remained investors’ top pick Americas regional capital flows — Q1 2019 (US$b) Americas “ Page 15 0.7 Mexico 0.7 0.8 Brazil 0.8 1.8 0.5 Canada 2.3 1.3 2.4 0.2 0.3 USA 4.2 Top investor countries/regions Note: Percentages may not add to 100% due to rounding. USCanada UK Philippines ItalyGreater China
  16. 16. Announcement date Target Target country/ bidder country Bidder Deal value (US$b) Bidder rationale Segment 25 March Emera Maine US/Canada ENMAX Corporation 1.3 Aligns with ENMAX’s strategy to grow through expansion of its regulated utility business in North America Integrated 4 March NextEra Energy Resources, LLC (six power plants) US/US NextEra Energy Partners, LP 1.0 Supports a continued focus on growing the renewables portfolio through sponsor drop downs Renewables 28 January Waneta Expansion Hydroelectric Project (51% stake) Canada/Canada Columbia Basin Trust; Columbia Power Corporation 1.0 Helps transfer control of the assets to the people of Columbia Basin Generation 12 February Sempra Renewables, LLC US/US American Electric Power Company Inc. 0.9 Part of AEP’s plan to invest US$2.2b in contracted renewables by 2023 Renewables 27 March Valener Inc. Canada/Canada Noverco Inc. 0.8 Fits Noverco’s plan to privatize Valener Gas utility Top five Americas deals — Q1 2019 Note: All deals are announced deals, and the values indicated are disclosed enterprise values comprised of equity and debt components. Miles Huq, EY Global P&U TAS Leader The sale of Emera Maine highlights corporate distress as an opportunity for investment. This is a continuing theme as shown by GE’s asset sale, Southern’s asset sales last year and Dominion’s acquisition of SCANA. Americas “ Page 16
  17. 17. Valuations and TSR snapshot — Q1 2019 Return over time — from base date Note: EY analysis is based on data sourced from S&P Capital IQ. Please see the appendix for the detailed definitions, the company segment definitions and the company tagging for the valuations analysis. Americas Page 17 Chart 6: Total shareholder return by segment (from 1 January 2019 to 31 March 2019) In the Americas, the EY Americas Utilities Index recorded a TSR of 14.5%, slightly underperforming the S&P 500, which returned 14.8%. The top performers in the region were Crius Energy Trust (93.6%) and Genie Energy (42.2%) driven by M&A activity. The generation segment continued its bullish trajectory with 25.7% returns. This result was driven by the 76.5% QTD return of TransAlta Corporation. The water and wastewater segment recorded the lowest TSR of 9.0%, compared to 1.7% TSR in Q4 2018. The EV/FY2 EBITDA of the sector was 10.7x, compared with 10.5x last quarter. 1 2 3 4 Water and wastewater assets traded at a premium to sector EV/FY2 EBITDA at 13.6x — the highest across all the regions for this asset class. 5 85% 90% 95% 100% 105% 110% 115% 120% 125% 130% 01/01/2019 15/01/2019 29/01/2019 12/02/2019 26/02/2019 12/03/2019 26/03/2019 S&P 500 TR (total return) % Large market capitalization integrated utility Medium and small capitalization integrated utility Gas utility Generation Renewables Water and wastewater
  18. 18. Valuations and TSR snapshot — Q1 2019 (continued) Note: EY analysis is based on data sourced from S&P Capital IQ. Please see the appendix for the detailed definitions, the company segment definitions and the company tagging for the valuations analysis. Large market capitalization integrated Medium and small market capitalization integrated Gas utility Generation Renewables Water and wastewater EY Americas Utilities Index TSR >20% higher than the regional sector average; EV/FY2 EBITDA >20% discount compared with the regional sector average TSR 0% to 20% higher than the regional sector average; EV/FY2 EBITDA between a 0% to 20% discount compared with the regional sector average TSR 0% to 20% lower than the regional sector average; EV/FY2 EBITDA between a 0% to 20% premium compared with the regional sector average TSR performance >20% lower than the regional sector average; EV/FY2 EBITDA >20% premium compared with the regional sector average Americas Page 18 Q1 QTD TSR TSR in % (from 1 January 2019 to 31 March 2019) EV/FY2 EBITDA (At 31 March 2019) • The water and wastewater segment returned a quarterly TSR of 9.0%, which is below the regional index average of 14.5%. • The EV/FY2 EBITDA multiple traded at 13.6x, 27.0% above the average regional sector multiple and greater than both Europe and Asia- Pacific (8.5x and 9.9x, respectively). Water and wastewater • The renewables segment returned a quarterly TSR of 17.7%, which is higher than the regional index average of 14.5%. • The EV/FY2 EBITDA multiple traded at 11.7x, which is 9% above the average regional sector multiple. The result is greater than that of Europe (9.1x) but less than that of Asia-Pacific (12.5x). Renewables • The generation segment returned a quarterly TSR of 25.7%, above the regional index average of 14.5%. • The EV/FY2 EBITDA multiple traded at 8.3x, 22.0% lower than the average regional sector multiple but greater than that of Europe and Asia-Pacific, which returned results of 5.7x and 7.8x, respectively. Generation • The gas utility segment returned a quarterly TSR of 14.0%, slightly below the regional index average of 14.5%. • The EV/FY2 EBITDA multiple traded at 11.1x, 4.0% above the average regional sector multiple. The result is greater than that of Europe (9.8x) but less than that of Asia-Pacific (14.8x). Gas utility • The medium and small market capitalization integrated segment returned a quarterly TSR of 15.0%, slightly above the regional index average of 14.5%. • The EV/FY2 EBITDA multiple traded at 9.6x, which is 11.0% lower than the average regional sector multiple but greater than the results of Europe and Asia-Pacific at 5.0x and 10.4x, respectively. Medium and small market capitalization integrated • The large market capitalization integrated segment returned a quarterly TSR of 11.7%, below the regional index average of 14.5%. • The EV/FY2 EBITDA multiple traded at 10.5x, which is 2.0% lower than the average regional sector multiple but greater than that recorded in Europe (7.5x) and Asia-Pacific (8.3x). Large market capitalization integrated 10.7x 13.6x 11.7x 8.3x 11.1x 9.6x 10.5x11.7% 15.0% 14.0% 25.7% 17.7% 9.0% 14.5%
  19. 19. M&A outlook and investment hotspots Continued investment in energy storage • Arizona Public Service is planning to add 850 MW of battery storage and 100 MW of solar by 2020. Florida Power & Light, the utility owned by NextEra Energy, is planning to build the world’s largest solar powered battery of 409 MW/900 MWh capacity in Florida. New York State Energy Research and Development Authority has announced US$350m in incentives to help New York meet its 3 GW energy storage goal. Renewables investments to increase • Utilities in the region are expected to spend US$12.5b in renewable energy capital expenditure in 2019, despite the US phaseout of investment tax credits (ITCs) and renewable electricity production tax credits (PTCs). Xcel Energy and Iowa’s MidAmerican Energy have announced 100% carbon-free targets. Corporates seek more clean energy • In March, over 200 companies, including Alphabet’s subsidiary Google, Facebook, General Motors and Walmart, launched the Renewable Energy Buyers Alliance (REBA). REBA’s goal is to bring 65 GW of new renewable energy online by 2025 and make it easier for corporate buyers to procure clean energy. 9 GWh cumulative capacity of energy storage projects to come online in the US by 2020 Solar plus storage power purchase agreements (PPAs) are becoming less expensive than the levelized cost of energy (LCOE) for combined cycle natural gas in the US, pressing utilities to consider adopting this new technology. Miles Huq, EY Global P&U TAS Leader Americas “ Page 19 Investment activity to increase in Latin America • EDP’s Brazilian subsidiary has announced plans to invest US$801m in developing the country’s transmission and distribution (T&D) infrastructure through 2023. Sempra plans to sell its 100% stake in Chilean utility Chilquinta Energía and 83.6% stake in Luz del Sur in Peru to focus on the US and Mexico markets. Aguas Nuevas and Esval, two Chilean water and wastewater utilities, have announced plans to invest US$355m to improve efficiencies and mitigate risks posed by climate change to their operations.
  20. 20. EY Americas Transaction Advisory Services P&U contacts Miles Huq Stephanie Chesnick Mitch Fane Robert A Jozwiak EY Global P&U TAS Leader EY US Northeast P&U TAS Leader +1 410 783 3735 miles.huq@ey.com EY US P&U TAS Leader +1 713 750 8192 stephanie.chesnick@ey.com EY US Southwest P&U TAS Leader +1 713 750 4897 mitchell.fane@ey.com EY US Central P&U TAS Leader +1 312 879 3461 robert.jozwiak@ey.com Lucio Teixeira Robert Leonard Rafael Aguirre Sosa EY Latin America South P&U TAS Leader EY US Southeast P&U TAS Leader EY Latin America North P&U TAS Leader +52 55 5283 8650 rafael.aguirre@mx.ey.com +55 11 2573 3008 lucio.teixeira@br.ey.com +1 704 335 4236 rob.leonard@ey.com Bill Armitage EY Canada P&U TAS Leader +1 416 943 2373 william.armitage@ca.ey.com Americas Page 20
  21. 21. Europe Activity driven by renewables megadeals
  22. 22. Power transactions and trends Q1 2019 Europe Veja Mate has an optimum risk-return ratio. A future technology that is already very well established was commissioned on schedule and to budget; it produces stable cash flows and makes an effective contribution to achieve the climate protection targets3. Johannes Anschott, Board Member, Commerz Real Transaction highlights Quarter’s largest deal in offshore wind • Motivated by corporate sustainability goals, German asset manager Commerz Real joined consortium members to buy an 80% stake in 402 MW German offshore wind farm Veja Mate for US$2.6b. Oil major acquires renewables assets • Total Eren, a subsidiary of Total SA, acquired NovEnergia II, a Luxembourg-based renewables company with a portfolio of 675 MW, for US$1.1b. Uncertainty prompts asset divestures • UK-based utility SSE announced plans to dispose assets to raise US$1.96b and restore its balance sheet. The move comes after a challenging 2018 for the company that included a US$543m trading loss, the failed merger between its electricity retail arm and Npower, and the suspension of capacity payments. deal value — down 27% from Q4 2018 US$6.8b renewables assets deal value, driven by two megadeals US$5.4b Chart 7: Europe deal value and volume by segment (announced asset and corporate-level deals, Q1 2017–Q1 2019) Source: EY analysis on publicly disclosed data “ Page 22 3 https://www.commerzreal.com/en/press-release/press-release/commerz-real-und-ingka-group-investieren-ueber-400-millionen-euro-in-nordsee-windpark-veja-mate/ 0 10 20 30 40 50 60 70 0 10 20 30 40 50 60 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Dealvolume(numberofdeals) Dealvalue(US$b) Generation Integrated Energy services Renewables Gas utility Water and wastewater Volume
  23. 23. Renewables dominate investment agenda Governments boost clean energy Oil majors focus in on power and utilities • Netherlands-based oil and gas company Shell has announced plans to become the world’s largest electricity company by 2035 through owning or purchasing 61 GW of power capacity. The company plans to invest approximately US$1b to US$2b of capital per year on new energy solutions. • Through its New Energies division, Shell announced the full acquisition of smart energy storage company Sonnen in February, and the acquisition of Greenlots, a major EV fast charging infrastructure provider based in the US. • Shell, in partnership with energy company Eneco and builder Van Oord, participated in a highly contested tender to build a 750 MW offshore wind farm off the Netherlands; the tender closed in March. • Another oil company, Total, joined with renewables companies Ørsted and Elicio to announce plans to bid to develop a 600 MW offshore wind farm in France. • In January, the French Government published a draft 10-year energy plan to double its installed renewables capacity to 113 GW by 2028. In February, Greece introduced its first long-term energy plan that outlined a framework for driving US$39b of investments in clean energy by 2030. • In January, the German Government announced plans to shut all of its 84 coal-powered plants by 2038 and replace them with renewable energy plants. The coal phaseout is estimated to cost US$45.7b. • Even with these developments, there is debate whether Europe’s draft National Energy and Climate Plans are sufficient to deliver the EU’s 32% renewables target for 2030. Utilities bullish on renewables investments • Italy’s Enel announced plans to spend 80% of its US$30b capital expenditure through 2021 on renewables and grid operations. Q1 saw the company acquire US$256m of renewables assets across the Americas and Asia-Pacific. Europe Page 23 We are not interested in the power business because we liked what we saw in the last 20 years. We are interested because we think we like what we see in the next 20 years … We can make better returns than the industry has done so far – 8-12% is the range we’ve been talking about4. Maarten Wetselaar, Director, New Energies, Shell “ 4 https://www.rechargenews.com/transition/1726552/oil-giant-shell-aims-to-be-worlds-biggest-power-company
  24. 24. Europe 78% of deal value was concentrated in three countries: Germany, Luxembourg and the UK. 56% of transactions (US$3.8b) were domestic deals with most (US$3.4b) conducted by financial investors. Europe regional capital flows — Q1 2019 (US$b) Germany attracts most investment Page 24 0.8 0.3 UK 1.1 Top investor countries/regions Germany UK Switzerland Australia JapanFrance 0.5 1.1 Luxembourg 1.6 0.5 Russia 0.5 0.3 Iceland 0.3 While financial investors have stepped up their game by acquiring renewables assets (US$3.9b), we are seeing increased greenfield investment commitments from utilities. Big utilities, such as Iberdrola and ENGIE, plan to invest more than US$17b in renewables by 2022. Miles Huq, EY Global P&U TAS Leader “2.6 Germany 2.6 Note: Percentages may not add to 100% due to rounding.
  25. 25. Investors’ growing interest in both offshore and onshore wind energy highlights the increasing maturity of this technology. Announcement date Target Target country/bidder country Bidder Deal value (US$b) Bidder rationale Segment 13 February Veja Mate Offshore Project GmbH (80% stake) Germany/Germany KGAL GmbH & Co. KG; Ingka Holding B.V.; Commerz Real AG; wpd invest GmbH 2.6 Supports Commerz Real’s sustainability goal to achieve a 2020 target of renewable energy production exceeding energy consumption Renewables 27 February NovEnergia II Luxembourg/France Total Eren 1.1 Aligns with bidder’s strategy to expand in the European market by enabling market entry into Luxembourg; Total Eren is already present in France, Greece and Italy Renewables 1 February SSE Plc (Dunmaglass wind farm) (35.5% stake); SSE Plc (Stronelairg wind farm) (35.5% stake) UK/UK Greencoat UK Wind Plc 0.6 Expands Greencoat’s portfolio of renewable energy assets Renewables 28 January En+ Group plc (10.55% stake) Russia/Switzerland Glencore Plc 0.5 Transaction is part of a securities swap that was done to facilitate delisting of En+ Group Generation 29 January Miya Luxembourg Holdings S.a.r.l Luxembourg/UK Bridgepoint Advisers Limited 0.5 Supports bidder’s strategy to invest in operationally strong natural resources businesses Water and wastewater Note: All deals are announced deals, and the values indicated are disclosed enterprise values comprised of equity and debt components. Europe Top five Europe deals — Q1 2019 Page 25
  26. 26. Europe Valuations and TSR snapshot — Q1 2019 The EY Europe Utilities Index underperformed with a quarter-to-date return of 8.4%, compared with the regional benchmark — STOXX Europe 600 — with a return of 12.4%. Renewables remained the highest performer in the region, driven by the performances of Falck Renewables S.p.A. (37.9%), Terna Energy Societe Anonyme Commercial Technical Company S.A. (21.6%) and Energiekontor AG (21.0%). The sector’s EV/FY2 EBTIDA multiple of 7.3x was slightly higher than the Q4 value of 7.1x. Generation and medium and small market capitalization integrated assets were valued at a discount compared with the sector’s EV/FY2 EBITDA valuations. Return over time — from base date Note: EY analysis is based on data sourced from S&P Capital IQ. Please see the appendix for the detailed definitions, the company segment definitions and the company tagging for the valuations analysis 1 2 3 4 Page 26 Chart 8: Total shareholder return by segment (1 January 2019 to 31 March 2019) 85% 90% 95% 100% 105% 110% 115% 120% 01/01/2019 15/01/2019 29/01/2019 12/02/2019 26/02/2019 12/03/2019 26/03/2019 Stoxx Europe 600 TR (total return) % Large market capitalization integrated utility Medium and small capitalization integrated utility Gas utility Generation Renewables Water and wastewater STOXX Europe 600 TR (total return) %
  27. 27. Valuations and TSR snapshot — Q1 2019 (continued) Large market capitalization integrated Medium and small market capitalization integrated Gas utility Generation Renewables Water and wastewater EY Europe Utilities Index TSR >20% higher than the regional sector average; EV/FY2 EBITDA >20% discount compared with the regional sector average TSR 0% to 20% higher than the regional sector average; EV/FY2 EBITDA between a 0% to 20% discount compared with the regional sector average TSR 0% to 20% lower than the regional sector average; EV/FY2 EBITDA between a 0% to 20% premium compared with the regional sector average TSR performance >20% lower than the regional sector average; EV/FY2 EBITDA >20% premium compared with the regional sector average Note: EY analysis is based on data sourced from S&P Capital IQ. Please see the appendix for the detailed definitions, the company segment definitions and the company tagging for the valuations analysis. Europe Page 27 Q1 QTD TSR TSR in % (from 1 January 2019 to 31 March 2019) EV/FY2 EBITDA (At 31 March 2019) • The gas utility segment returned a quarterly TSR of 12.1%, above the regional index average of 8.4%. • The EV/FY2 EBITDA multiple traded at 9.8x, 34% above the regional average but less than that of Asia-Pacific and Americas (14.8x and 11.1x, respectively). Gas utility • The medium and small market capitalization integrated segment returned a quarterly TSR of 4.0%, below the regional index average of 8.4%. • The EV/FY2 EBITDA multiple traded at 5.0x, less than results recorded in Asia-Pacific and Americas (10.4x and 9.6x, respectively). Medium and small market capitalization integrated • The large market capitalization integrated returned a quarterly TSR of 9.3%, which was above the regional index average of 8.4%. • The EV/FY2EBITDA multiple traded at 7.5x, which was the lowest of all regions (Asia-Pacific 8.3x; Americas 10.5x). Large market capitalization integrated • The water and wastewater segment returned a quarterly TSR of 8.4%, in line with the regional index average of 8.4%. • The EV/FY2 EBITDA multiple traded at 8.5x, which is 16.5% above the regional sector multiple. It is less than valuations exhibited in Asia-Pacific and Americas (9.9x and 13.6x, respectively). Water and wastewater • The renewables segment returned a quarterly TSR of 15.6%, above the regional index average of 8.4%. • The EV/FY2 EBITDA multiple traded at 9.1x, which is 26% above the regional average. The valuation is less than those achieved in Asia- Pacific and Americas (12.5x and 11.7x, respectively). Renewables • The generation segment returned a quarterly TSR of 2.4%, below the regional index average of 8.4%. • The EV/FY2 EBITDA multiple traded at 5.7x, less than that of Asia-Pacific and Americas (7.8x and 8.3x, respectively). Generation 9.3% 4.0% 12.1% 2.4% 15.6% 8.4% 8.4% 7.3x 8.5x 9.1x 5.7x 9.8x 5.0x 7.5x
  28. 28. Utilities focus on decarbonization • Czech utility CEZ Group has announced plans to shut 1 GW of coal capacity by 2020. • ENGIE has announced that it will invest between US$12.4b and US$13.5b in renewables and behind-the- meter solutions. The utility plans to add 9 GW of renewables capacity from 2019 to 2021. • According to EDP’s strategic plan, more than 70% of the company’s electricity generation by 2022 will be sourced from renewables. • Enel has announced plans to develop 11.6 GW of renewables capacity by 2021. Increased push for EVs • The EU has tightened caps on carbon dioxide emissions from cars, setting a 37.5% CO2 reduction target for 2030 compared with the 2021 limit. The move aims to accelerate the development of EVs. • During 2019, Scottish Power will expand the EV charging infrastructure in the UK, as part of its plan to invest US$2.6b in clean energy in the country. • UK-based GRIDSERVE Sustainable Energy, which develops, owns and operates renewable energy projects, plans to spend US$1.3b on new EV charging infrastructure in the UK over the next five years. EU at risk to miss 2030 renewables and energy savings goals • WindEurope released analysis indicating that Europe’s draft National Energy and Climate Plans are insufficient to deliver the EU’s 32% renewables target for 2030. The group called for more definitive Plans supporting renewables growth. These Plans must be finalized by 31 December 2019. • The Coalition for Energy Savings indicated that stronger GDP growth (mainly in Eastern Europe) was putting the EU’s overall nonbinding target to improve its energy efficiency by 32.5% at risk. M&A outlook and investment hotspots US$1.14b green bond launched by Enel to finance new renewables, transmission and distribution networks, and e-mobility projects We plan to eliminate any range or charging anxiety by building a UK-wide network of customer- focused, brand-new Electric Forecourts that will make it easier and cheaper to use an electric vehicle than a petrol or diesel alternative5. Toddington Harper, Chief Executive Officer, GRIDSERVE Europe “ Page 28 5 https://www.smart-energy.com/industry-sectors/electric-vehicles/plans-for-100-uk-ev-charging-forecourts-unveiled-gridserve/
  29. 29. Europe EY Europe Transaction Advisory Services P&U contacts Miles Huq Arnaud De Giovanni John Curtin Grigory Arutunyan EY Global P&U TAS Leader +1 410 783 3735 miles.huq@ey.com EY EMEIA P&U TAS Leader EY UK & Ireland (UKI) P&U TAS Leader EY Central, Eastern and Southeastern Europe and Central Asia (CESA) Region P&U TAS Leader +33 1 55 61 04 18 arnaud.de.giovanni@fr.ey.com +44 20 7951 6257 jcurtin@uk.ey.com +7 495 641 2941 grigory.s.arutunyan@ru.ey.com Giacomo Chiavari Andreas Siebel Bruno Swildens Michael Bruhn EY Mediterranean P&U TAS Leader EY Germany, Switzerland and Austria (GSA) P&U TAS Leader EY Western Europe and Maghreb (WEM) P&U TAS Leader EY Nordics P&U TAS Leader +39 027 2212 3090 giacomo.chiavari@it.ey.com +49 211 9352 18523 andreas.siebel@de.ey.com +31 88 40 78776 bruno.jelgerhuis.swildens@nl.ey.com +45 2529 3135 michael.bruhn@dk.ey.com Page 29
  30. 30. Asia-Pacific Investors focus on greenfield renewables
  31. 31. Power transactions and trends Q1 2019 Asia-Pacific Asia-Pacific is feeling the pressure of slowing Chinese economic growth. This, coupled with continuing geopolitical tensions, weighed heavy on investors this quarter. However, greenfield renewable development is providing growth opportunities in the region. Mile Huq, EY Global P&U TAS Leader US$4.1b total deal value, a 45% decline from Q4 2018 US$3.6b deal value in renewables – 88% of deal value Chart 9: Asia-Pacific deal value and volume by segment (announced asset and corporate-level deals, Q1 2017–Q1 2019) “ Page 31 Transaction highlights Deal value and volume fall • Deal value and volume decreased 45% quarter-on-quarter, reaching a low of 27 deals totaling US$4.1b. Chinese privatization dominates Q1 • The quarter’s largest deal — 70% of deal value — was China Power New Energy’s delisting of China Power Clean Energy Development Company Limited (CP Clean Energy) from the Hong Kong Stock Exchange. Renewables drive activity • Renewables M&A was the only segment to increase in value from Q4 2018, more than doubling to reach US$3.6b and forming 88% of deal value. Much of the increase was due to the privatization of CP Clean Energy (80% of all renewables deal value). Continuing investment in generation • Q1 saw six small deals in conventional generation — the highest deal number in this segment across all regions. Investment is led by domestic activity in Greater China (five of the six deals). 0 10 20 30 40 50 60 0 5 10 15 20 25 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Dealvolume(numberofdeals) Dealvalue(US$b) Generation Integrated utility Energy services Renewables Gas utility Water and wastewater Volume
  32. 32. Asia-Pacific New solar and wind projects attract investment • The development of offshore wind capacity is ramping up, with Australia, Japan, China, Korea and India all announcing projects or in the midst of tender processes. China’s Jiangsu province approved 24 offshore wind power projects with a total capacity of 6.7 GW. In South Korea, state-owned National Oil Corporation (KNOC) and Equinor, a Norwegian utility, are exploring opportunities to develop 200 MW capacity of commercial floating offshore wind farms. Offshore wind accelerating India focuses on solar • India has set an ambitious target to achieve 100 GW of solar power by 2022. Development of capacity is well underway with a number of solar developments announced this quarter. Notably, the Solar Energy Corporation of India Ltd. (SECI) has issued a tender for the development of a 275 MW of grid-connected solar PV project in Uttar Pradesh, 1.2 GW in Madhya Pradesh and 200 MW in Andhra Pradesh with plans to issue another tender for 1 GW soon. Executing an MOU with Equinor will become a critical opportunity that will advance to practical steps of floating offshore wind in Korea. We plan to actively focus on progress and de-risking studies, including feasibility studies in collaboration with Equinor6. Jae-Heon Shim, Senior Vice President, KNOC • More large energy users are developing renewables projects to reduce exposure to price volatility. Malabar Coal announced plans to build a 25 MW solar farm, while Gold Fields Australia signed a contract with UK-based power solution company Aggreko to build an off-grid renewable and battery system at a Western Australian mine. There are rumors that telecommunications giant Telstra will issue a tender for 300 MW of new solar and/or wind power in the New South Wales market to cut its exposure to volatile grid prices. Australia’s corporates boost greenfield development “ Page 32 6 https://www.power-technology.com/news/knoc-equinor-south-korea/
  33. 33. 83% of total deal value (US$3.4b) was concentrated in Greater China. 93% of deal value (US$3.8b) was domestic. Asia-Pacific Limited M&A activity Miles Huq, EY Global P&U TAS Leader Greater China continues to be the biggest investor in Asia- Pacific, investing both domestically and internationally. While the outbound agenda is significant, we are seeing increasing appetite for domestic M&A. Asia-Pacific regional capital flows — Q1 2019 (US$b) “ Page 33 0.2 South Korea 0.2 3.5 Greater China 3.5 0.3 India 0.3 0.1 Thailand 0.1 Note: Numbers may not add to total due to rounding. Greater China UK ThailandSouth Korea Top investor countries/regions
  34. 34. Asia-Pacific Top five Asia-Pacific deals — Q1 2019 Announcement date Target Target country/ bidder country Bidder Deal value (US$b) Bidder rationale Segment 28 March China Power Clean Energy Development Co. Ltd. (73.58% stake) Greater China/ Greater China China Power International Holding Limited 2.9 Aligns with bidder’s strategy to expand its renewables portfolio and delist the target company from the Hong Kong Stock Exchange Renewables 1 March Ayana Renewable Power Private Limited India/UK CDC Group plc; National Investment and Infrastructure Fund (NIIF); EverSource Capital Group 0.3 Furthers bidder’s strategy to expand into India’s renewable energy market Renewables 22 February Youngduk Wind Power Co., Ltd.; Yeong Yang Wind Power Corporation South Korea/ South Korea Samtan Co., Ltd.; Shinhan Alternative Investment Management Inc. 0.2 Supports investors’ plans to expand into wind energy Renewables 7 March Qinhuangdao Qinre Electric Power Co., Ltd. (40% stake); Hebei Zhanghewan Storage Power Generation Co., Ltd. (45% stake) Greater China/ Greater China Jointo Energy Investment Co., Ltd. Hebei 0.2 Enables Jionto Energy Investment to consolidate market share and enhance power generation capacity Generation 20 March TBEA Xinjiang New Energy Co., Ltd. (15.02% stake) Greater China/ Greater China Bank of Communications Financial Asset Investment Co., Ltd. 0.1 Improves the financing capacities of Xinjiang and supports the development and operation of wind and solar projects Renewables Note: All deals are announced deals, and the values indicated are disclosed enterprise values comprised of equity and debt components. Page 34 Investment in India’s solar sector is on the rise.
  35. 35. Asia-Pacific Valuations and TSR snapshot — Q1 2019 Note: Please see the appendix for information on the company assignment to each segment. The EY Asia-Pacific Utilities Index recorded a TSR of 8.2%, underperforming the regional benchmark Nikkei 225, which recorded a TSR of 9.6%. 1 Renewables was the highest performing segment, outperforming the market with a QTD return of 27.6%, attributed to the high TSR of Ning Xia Yin Xing Energy and CECEP Wind- power Corporation. 2 The EV/FY2 EBITDA of the sector traded slightly downward at 10.3x, compared with 11.7x in Q4 2018. 3 Generation delivered a negative QTD return with a TSR of -0.62%, the worst performing segment across all regions. 4 Page 35 Return over time — from base date Chart 10: Total shareholder return by segment (from 1 January 2019 to 31 March 2019) 85% 95% 105% 115% 125% 135% 145% 01/01/2019 15/01/2019 29/01/2019 12/02/2019 26/02/2019 12/03/2019 26/03/2019 Nikkei 225 TR (total return) % Large market capitalization integrated utility Medium and small capitalization integrated utility Gas utility Generation Renewables Water and wastewater
  36. 36. Asia-Pacific Valuations and TSR snapshot — Q1 2019 (continued) Note: EY analysis is based on data sourced from S&P Capital IQ. Please see the appendix for the detailed definitions, the company segment definitions and the company tagging for the valuations analysis. Large market capitalization integrated Medium and small market capitalization integrated Gas utility Generation Renewables Water and wastewater EY Asia-Pacific Utilities Index TSR >20% higher than the regional sector average; EV/FY2 EBITDA >20% discount compared with the regional sector average TSR 0% to 20% higher than the regional sector average; EV/FY2 EBITDA between a 0% to 20% discount compared with the regional sector average TSR 0% to 20% lower than the regional sector average; EV/FY2 EBITDA between a 0% to 20% premium compared with the regional sector average TSR performance >20% lower than the regional sector average; EV/FY2 EBITDA >20% premium compared with the regional sector average Page 36 Q1 QTD TSR TSR in % (from 1 January 2019 to 31 March 2019) EV/FY2 EBITDA (At 31 March 2019) • Gas utility assets returned a quarterly TSR of 8.7%, which is above the regional index average of 8.2%. • The EV/FY2 EBITDA multiple traded at 14.8x, which is 43% above the average regional sector multiple and greater than the results of Europe and Americas (9.8x and 11.1x, respectively). Gas utility • The medium and small market capitalization integrated segment returned a quarterly TSR of 6.3%, below the regional index average of 8.2%. • The EV/FY2 EBITDA multiple traded at 10.4x, which is 1% above the average regional sector multiple but greater than that of Europe and Americas (5.0x and 9.6x, respectively). Medium and small market capitalization integrated • The large market capitalization integrated returned a quarterly TSR of 2.2%, which is below the regional index average of 8.2%. • The EV/FY2 EBITDA multiple traded at 8.3x, which is 19% below the average regional sector multiple and greater than that of Europe but less than Americas (7.5x and 10.5x, respectively). Large market capitalization integrated • The water and wastewater segment returned a quarterly TSR of 14.1%, above the regional index average of 8.2%. • The EV/FY2 EBITDA multiple traded at 9.9x, which is below the average regional sector multiple. The result is greater than that of Europe (8.5x) but less than that of Americas (13.6x). Water and wastewater • Renewables assets returned a quarterly TSR of 27.6%, which is above the regional index average of 8.2%. • The EV/FY2 EBITDA multiple traded at 12.5x, which is 21% above the average regional sector multiple and greater than that of Europe and Americas (9.1x and 11.7x, respectively). Renewables • The generation assets returned a quarterly TSR of -0.6%, below the regional index average of 8.2%. • The EV/FY2 EBITDA multiple traded at 7.8x, which is 25% below the average regional sector multiple. The result is greater than that of Europe (5.7x) but less than that achieved in Americas (8.3x). Generation 2.2% 6.3% 8.7% -0.6% 27.6% 14.1% 8.2% 10.3x 9.9x 12.5x 7.8x 14.8x 10.4x 8.3x
  37. 37. Asia-Pacific M&A outlook and investment hotspots Bangladesh attracts solar investment • Bangladesh has become an attractive investment destination, particularly for solar projects. The country plans to add 2,500 MW capacity each year, with a target of 10% renewables by 2021. In this quarter alone, more than 150 MW of new solar projects and tenders have been announced. The World Bank has approved US$185m in credit to facilitate the development of an additional 310 MW renewable energy generation capacity to meet growing demand for electricity, which is also encouraging private investment. Thailand will allow customers to export to the grid • Thai policymakers are currently consulting around how householders with new solar PV installations can export excess power to the grid, with a feed-in tariff for up to 100 MW of capacity. The project is in line with the Power Development Plan that targets 12.7 GW of solar by 2037. Electric vehicle (EV) pilots aim to boost adoption • Panasonic is collaborating with BSES Yamuna Power Limited to set up an EV charging station at its New Delhi head office to study charging behavior and patterns, real-time charging data, app- based controls and automated payment mechanisms. New Zealand’s Wellington City Council announced plans to install its first EV charging stations in residential areas, enabling people without access to household parking to charge EVs overnight. We have a number of charging stations in the central business district, but residential charging stations will mean EVs could be a practical option for Wellingtonians wanting to make the switch to them7. Justin Lester, Mayor, Wellington City US$9.2b of offshore wind tenders to be launched by Japan in 2019 “ Page 37 7 https://wellington.govt.nz/your-council/news/2019/03/15-ev-chargers-for-the-suburbs.
  38. 38. Asia-Pacific EY Asia-Pacific P&U Transaction Advisory Services contacts EY Global P&U TAS Leader EY Oceania P&U TAS Leader EY ASEAN P&U TAS Leader EY Greater China P&U TAS Leader Miles Huq Nick Cardno Gilles Pascual Alex Zhu +1 410 783 3735 miles.huq@ey.com +61 2 9248 4817 nick.cardno@au.ey.com +65 6309 6208 gilles.pascual@sg.ey.com +86 10 5815 3891 alex.zhu@cn.ey.com EY India P&U TAS Leader EY Japan P&U TAS Leader EY Korea P&U TAS Leader Somesh Kumar Yo Takehana Bum Choong Kim +91 11 6671 8270 somesh.kumar@in.ey.com +81 3 4582 6623 yo.takehana@jp.ey.com +82 2 3787 4107 bum-choong.kim@kr.ey.com Page 38
  39. 39. Africa and the Middle East Governments focus on renewable energy while financial sponsors invest
  40. 40. Power transactions and trends Q1 2019 Africa and the Middle East of electricity in the Middle East and North Africa to come from solar PV by 2050 smart meters to be installed in Africa and the Middle East by 2030 39% 235.2m Chart 11: Africa and the Middle East smart metering investments (US$b) Source: Bloomberg New Energy Finance Source: EY analysis based on publicly disclosed data Chart 12: Africa and the Middle East deal value (announced asset and corporate-level deals, 2010–Q1 2019) Page 40 0.8 0.8 0.9 1.0 1.2 2017 2018 2019f 2020f 2021f - 1 2 3 4 5 6 7 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2019 US$b Year Transaction highlights Continued funding of new renewables investment • The African Development Bank is financing the construction of renewable power plants across Sub-Saharan Africa with a combined capacity of 533 MW. • In January, Voltalia, a French-based energy services company, announced plans to build a 40 MW solar power plant in Western Kenya. • Harmony Gold, a South Africa-based mining company, is planning to build a 30 MW solar power plant to power its operations in Africa. • In February, France’s ENGIE began operations of its 100 MW Kathu solar CSP plus storage plant located in South Africa’s Northern Cape province. Largest deal of the region in water and wastewater • Majis Industrial Services S.A.O.C, an Oman-based, government-owned company, acquired an undisclosed stake in Utico FZC, the UAE-based company engaged in water treatment and management solutions, for a consideration of US$400m. The Kingdom of Saudi Arabia (KSA) secures record low auction for first wind farm • KSA’s first wind farm — the 400 MW Dumat Al Jandal farm — will be developed by a consortium made up of renewable energy developers EDF Renewables and Masdar, which were awarded the contract following their record-low bid of 2.13 cents per kWh.
  41. 41. KSA increases renewables target Weak economic conditions drive privatization and unbundling • After limited activity in 2018, the KSA’s Renewable Energy Project Development Office (REPDO) has increased its solar energy target from 9.5 GW to nearly 60 GW, including 40 GW of solar PV. • The government has followed the successful connection of its first solar IPP in January with the announcement of several new renewables tenders, including a 2.6 GW of solar in Makkah, the Dumat Al Jandal wind farm and seven greenfield solar PV projects with a combined capacity of 1,500 MW. Africa and the Middle East Governments seek energy reform and refocus on renewables The Kingdom of Saudi Arabia has set a clear energy strategy to substantially increase the share of renewables in its total energy mix to 10% by 20238. Mohamed Jameel Al Ramahi, CEO, Masdar • Oman plans to privatize two power companies by selling 70% and 49% stakes in Muscat Electricity Distribution Company and Oman Electricity Transmission Company, respectively, following weak economic conditions due to depressed oil prices. The government has expressions of interest from 25 investors. • South Africa is considering unbundling state-owned utility Eskom into three separate units: generation, transmission and distribution. The utility has faced financial, operational and governance challenges in recent years. “ Page 41 South Africa moves to boost clean energy • After a three-year hiatus of the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), the end of March saw the signing of 27 outstanding renewables PPAs. • This development is expected to lead the way for more renewables projects — a new round of bidding will be launched later this year with an estimated program of 1,800 MW capacity. 40 GW of solar energy capacity in Saudi Arabia by 2030 8 https://masdar.ae/en/news-and-events/news/2019/01/11/11/46/the-edf-renewables-masdar-consortium-awarded-the-dumat-al-jandal-wind-project-in-saudi-arabia
  42. 42. I am so excited to launch this third expedition of the electric cars. This is an indication of how technology has evolved in the UAE over the years. The government will continue to promote all types of conservation drives in the country as we look forward towards sustainability9. Suhail Mohammed Faraj Al Mazroui, UAE Minister of Energy & Industry US$1.68b estimated value of the Gulf region’s smart grid market by 2026 Increasing focus on e-mobility solutions • Dubai is incentivizing the use of electric vehicles (EVs) through initiatives, including free public charging, free vehicle registrations and dedicated parking locations. • The Emirates Authority for Standardization and Metrology has developed technical regulations for hydrogen cell vehicles, making the UAE the first of the Gulf Cooperation Council to do so. • Shell South Africa will launch its first EV charging stations this year across its retail network in South Africa. • Nissan Motor Co. plans to partner with Egyptian authorities to develop the country’s EV ecosystem. Focus on smart grid investments and e-mobility More investment in Middle East smart grid infrastructure • Nokia signed a memorandum of understanding (MoU) with Saudi Electricity Company to deploy 10 million smart meters in Saudi Arabia. • Kuwait’s Ministry of Electricity and Water has issued a request for procurement for smart meters. • Dubai Electricity and Water Authority has signed an MoU with Saudi Aramco to cooperate on energy, research and development, and smart grids. Africa and the Middle East Page 42 9 https://www.khaleejtimes.com/nation/abu-dhabi/twelve-electric-cars-start-2000-km-trip-to-spread-the-green-message “
  43. 43. Bidder company/country Target country Project description Segment Dubai Electricity and Water Authority/UAE UAE Plans to set up a 900 MW solar PV power plant Renewables Emirates Water and Electricity Company/UAE UAE Plans to build a 2,000 MW solar plant in Dubai Renewables Ministry of Finance and Economic Development/Ethiopia Ethiopia Plans to develop solar PV plants with a combined capacity of 800 MW at an investment of US$795m Renewables Oman Power and Water Procurement Company/Oman Oman Will invest US$400m to set up a 500 MW solar PV project Renewables Ministry of Energy, Industry and Mineral Resources/Saudi Arabia Saudi Arabia Plans to build solar projects of 2,600 MW capacity in Makkah region Renewables Top five Africa and the Middle East greenfield investments — Q1 2019 Africa and the Middle East Page 43
  44. 44. Africa and the Middle East M&A outlook and investment hotspots Investment in off-grid energy access will continue to rise • Investment in off-grid energy access, which includes businesses that sell solar panels to power lights, cell phones and other household devices, as well as microgrids that power entire communities, reached almost US$1.7b by the end of 2018, up from almost zero in 2010. • A sector traditionally funded by nonprofits has seen the entrance of large strategic investors, including European utilities, such as ENGIE and EDF; oil and gas majors, including Shell and Total; and energy technology providers, including Schneider Electric. Renewables development to accelerate further • Lebanon has short-listed 28 firms in its tender for a 180 MW solar power project. • Algeria will issue tenders for a 150 MW solar power project in 2019 to meet growing electricity demand. • Nigeria’s University of Benin has launched a tender for a 15 MW solar power project that includes 5 MW of battery energy storage. • Qatar plans to launch an energy-focused Islamic bank in late 2019 with a targeted capital of US$10b to finance both domestic and global energy projects. US$1.7b investment in off-grid energy access in 2018 Page 44
  45. 45. Africa and the Middle East EY Africa and the Middle East Transaction Advisory Services P&U contacts EY Global P&U TAS Leader EY Middle East P&U TAS Leader Miles Huq David Lloyd +1 410 783 3735 miles.huq@ey.com +966 11 215 9852 david.lloyd@sa.ey.com Page 45
  46. 46. Appendix
  47. 47. Appendix: Definitions Company segment definitions Segment EY definition Large market capitalization Utilities with market capitalization more than US$10b and engaged in multiple segments of the power value chain — generation, T&D, and retail or T&D and retail — and utilities that have T&D business and substantial presence in other segments, as well as from the perspective of revenues Medium and small market capitalization Utilities with market capitalization less than US$10b and engaged in multiple segments of the power value chain — generation, T&D, and retail or T&D and retail — and utilities that have T&D business and substantial presence in other segments, as well as from the perspective of revenues Gas Utilities that generate the majority of their revenues from downstream gas, including transmission, distribution and the sale of gas as an energy source Generation Utilities that generate the majority of their revenues from power production through large centralized (nonrenewable) sources, including coal, gas, oil, large hydro and nuclear Renewables Utilities that are engaged in generating power from centralized or distributed renewable energy sources, including solar, wind and small hydro Water and wastewater Utilities that manage water and wastewater networks, and engage in the distribution, supply or treatment of water and wastewater Page 47
  48. 48. Americas company segment tagging for valuations analysis Large market capitalization integrated Alliant Energy Corp. Ameren Corp. American Electric Power Company, Inc. Avangrid, Inc. CenterPoint Energy, Inc. CMS Energy Corp. Consolidated Edison, Inc. Dominion Energy, Inc. DTE Energy Company Duke Energy Corp. Edison International Entergy Corp. Evergy, Inc. Eversource Energy Exelon Corp. FirstEnergy Corp. Fortis Inc. Integrated utility in Pennsylvania NextEra Energy, Inc. Pinnacle West Capital Corp. Public Service Enterprise Group Inc. Sempra Energy Southern Company WEC Energy Group, Inc. Xcel Energy Inc. Appendix: Americas Medium and small market capitalization integrated Algonquin Power & Utilities Corp. ALLETE, Inc. ATCO Ltd. Avista Corp. Black Hills Corp. Canadian Utilities Ltd. Companhia Energética de Brasília - CEB Crius Energy Trust EDP - Energias do Brasil S.A. El Paso Electric Company Emera Inc. Genie Energy Ltd. Hawaiian Electric Industries, Inc. Hydro One Ltd. Just Energy Group Inc. Light S.A. MDU Resources Group, Inc. MGE Energy, Inc. NorthWestern Corp. OGE Energy Corp. Otter Tail Corp. PG&E Corp. PNM Resources, Inc. Portland General Electric Company SCANA Corp. Spark Energy, Inc. Unitil Corp. Vectren Corp. Gas AltaGas Ltd. Atmos Energy Corp. Chesapeake Utilities Corp. National Fuel Gas Company New Jersey Resources Corp. NiSource Inc. Northwest Natural Holding Company ONE Gas, Inc. RGC Resources, Inc. South Jersey Industries, Inc. Southwest Gas Holdings, Inc. Spire Inc. TransCanada Corp. UGI Corp. Valener Inc. Generation Capital Power Corp. CESP - Companhia Energética de São Paulo NRG Energy, Inc. The AES Corp. TransAlta Corp. Vistra Energy Corp. Renewables AES Tietê Energia S.A. Boralex Inc. Brookfield Renewable Partners L.P. Canadian Solar Inc. Clearway Energy, Inc. Covanta Holding Corp. CPFL Energias Renováveis S.A. Innergex Renewable Energy Inc. NextEra Energy Partners, LP Northland Power Inc. Ormat Technologies, Inc. Pattern Energy Group Inc. SunPower Corp. Sunrun Inc. TerraForm Power, Inc. TransAlta Renewables Inc. Vivint Solar, Inc. Water and wastewater American States Water Company American Water Works Company, Inc. Aqua America, Inc. Artesian Resources Corp. California Water Service Group Connecticut Water Service, Inc. Consolidated Water Co. Ltd. Middlesex Water Company SJW Group The York Water Company Page 48
  49. 49. Europe company segment tagging for valuations analysis Large market capitalization integrated CEZ, a. s. E.ON SE EDP - Energias de Portugal, S.A. Electricité de France S.A. Endesa, S.A. Enel SpA ENGIE SA Fortum Oyj Iberdrola, S.A. innogy SE National Grid plc Red Eléctrica Corporación, S.A. RWE Aktiengesellschaft SSE plc Terna - Rete Elettrica Nazionale Società per Azioni VERBUND AG Medium and small market capitalization integrated ACCIONA, S.A. Alpiq Holding AG Centrica plc Drax Group plc Elia System Operator SA EnBW Energie Baden-Württemberg AG Enea S.A. EVN AG PGE Polska Grupa Energetyczna S.A. Public Joint Stock Company Inter RAO UES Public Joint-Stock Company Moscow United Electric Grid Company Public Power Corp. S.A. Rosseti, Public Joint Stock Company TAURON Polska Energia S.A. Gas AS Latvijas Gaze Enagás, S.A. Hera S.p.A. Italgas S.p.A. Naturgy Energy Group, S.A. Rubis Snam S.p.A. Generation A2A S.p.A. Irkutsk Public Joint Stock Company of Energetics and Electrification Public Joint Stock Company Donbasenergo Public Joint-Stock Company Federal Hydro- Generating Company - RusHydro Uniper SE Renewables aventron AG EDP Renováveis, S.A. Energiekontor AG Falck Renewables S.p.A. FUTUREN SA Ørsted A/S Terna Energy Societe Anonyme Commercial Technical Company S.A. Water and wastewater Pennon Group Plc Severn Trent Plc SUEZ SA United Utilities Group PLC Veolia Environnement S.A. Appendix: Europe Page 49
  50. 50. Asia-Pacific company segment tagging for valuations analysis Large market capitalization integrated Chubu Electric Power Company, Inc. CK Infrastructure Holdings Ltd. CLP Holdings Ltd. Korea Electric Power Corp. Power Assets Holdings Ltd. Power Grid Corp. of India Ltd. Tenaga Nasional Berhad The Kansai Electric Power Company, Inc. Tokyo Electric Power Company Holdings, Inc Medium and small market capitalization integrated AGL Energy Ltd. AusNet Services Ltd. BKW AG CESC Ltd. Contact Energy Ltd. Electric Power Development Co., Ltd. ERM Power Ltd. Genesis Energy Ltd. HK Electric Investments and HK Electric Investments Ltd. Hokkaido Electric Power Company, Inc. Hokuriku Electric Power Company JSW Energy Ltd. Kyushu Electric Power Company, Inc. Origin Energy Ltd. Ratchaburi Electricity Generating Holding Public Company Ltd. Shikoku Electric Power Company, Inc. The Chugoku Electric Power Co., Inc. The Tata Power Company Ltd. Tohoku Electric Power Company, Inc. Trustpower Ltd. Vector Ltd. Gas APA Group China Gas Holdings Ltd. ENN Energy Holdings Ltd. Korea Gas Corporation Osaka Gas Co., Ltd. PT Perusahaan Gas Negara (Persero) Tbk Shenzhen Gas Corp. Ltd. The Hong Kong and China Gas Company Ltd. Toho Gas Co., Ltd. Tokyo Gas Co., Ltd. Generation Beijing Jingneng Clean Energy Co., Ltd. China Power International Development Ltd. Datang International Power Generation Co., Ltd. First Philippine Holdings Corp. GuiZhou QianYuan Power Co., Ltd. Huadian Power International Corp. Ltd. Huaneng Power International, Inc. Mercury NZ Ltd. NHPC Ltd. NTPC Ltd. OPG Power Ventures PLC Reliance Power Ltd. Zhejiang Zheneng Electric Power Co., Ltd. Renewables CECEP Wind-power Corp. Co., Ltd. China Datang Corp. Renewable Power Co., Ltd. Huaneng Renewables Corp. Ltd. Kong Sun Holdings Ltd. Meridian Energy Ltd. Ning Xia Yin Xing Energy Co., Ltd. Water and wastewater Beijing Enterprises Water Group Ltd. Beijing Water Business Doctor Co., Ltd. Binh Duong Water - Environment Joint Stock Company China Water Affairs Group Ltd. Chongqing Water Group Co., Ltd. Daiseki Co., Ltd. Eastern Water Resources Development and Management Public Company Ltd. Guangdong Investment Ltd. Luenmei Quantum Co., Ltd. Manila Water Company, Inc. SIIC Environment Holdings Ltd. TTW Public Company Ltd. Tus-Sound Environmental Resources Co., Ltd. VA Tech Wabag Ltd. WHA Utilities and Power Public Company Ltd. Appendix: Asia-Pacific Page 50
  51. 51. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. For more information about our organization, please visit ey.com. © 2019 EYGM Limited. All Rights Reserved. EYG no. 002123-19Gbl BMC Agency GA 1010989 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made. ey.com

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