Coalition policy driving ‘big cool down’ in Australian renewables

Renewable energy is so hot right now… except in Australia, of course, where according to a new PwC report, the local market is in the midst of a big chill, thanks to a mess of government policy ranging from ambiguous to downright unsympathetic.

In what it describes as a “big cool down,” the PwC report points to subdued renewables deal activity in Australia in 2014, with four deals in the first half and one deal announced in the second half of the year.

“We don’t foresee any pick-up in transactions involving Australian renewables in 2015,” said Mark Coughlin, PwC Australia’s utilities leader.

“The outlook is just too uncertain with the ongoing ambiguity around Australia’s long term energy policy and where the 2020 renewable energy targets will eventually land.”

Globally, meanwhile, the M&A value in the power and renewables sector had reached its highest level in a decade, up 70 percent year-on-year, the report said.

Any further upward movement, it noted, would see deal value in the sector edging back towards the
heady levels last seen before the credit crunch.

The one bright spot in Australia, according to the report, would be in the utilities market, with potential new privatisation deals in NSW and Queensland set to headline global power deals in 2015.

PwC describes the sale of the two easter Australian states’ electricity distribution assets as “among the most eagerly anticipated power deals globally in 2015,” with an estimated combined sale price of more than $A50 billion – an amount that would easily eclipse the value of the largest electricity deal globally in 2014 of $US12.1bn.

“All eyes will be on Australia this year and, depending on the outcome of State elections, we expect the leasing of the networks in NSW and Queensland to be amongst the top five largest transactions of their kind globally in 2015,” said Coughlin.

The potential privatisations would attract considerable interest from both domestic and overseas institutional investors, Coughlin added, including local and international superannuation and pension funds, and Chinese, Japanese and South-East Asian bidders.

“Historically, Chinese state-owned companies and non-corporate investment buyers are strongly represented in these transactions all around the world,” he said.

“Last year State Grid of China purchased a 35 per cent stake in a vehicle controlling Italy’s energy grids and Macquarie acquired US utility Cleco and E.ON’s Spanish operations.”

“Based on how these deals have played out overseas we know that any prospective purchaser will be in it for the long haul, because they value the stability and recurring returns that these types of assets traditionally provide,” Coughlin said.

The report also finds:

– Total worldwide power and renewables deal value rose from $US143.3 billion in 2013 to $US243.1 billion in 2014, a 70 per cent increase year-on-year.

– It’s the first time the total has broken out of the US$100-200bn range established since the pre-credit crisis year of 2007.

– A series of big but one-off restructuring deals in the US gas sector, involving Kinder Morgan and Williams, contributed US$92.2bn to the worldwide M&A total.

“Globally, we see plenty of potential deal flow in the pipeline but there’s likely to be an element of ‘wait and see’ as dealmakers take stock of lower prices globally,” Mr Coughlin said.

“A number of wider global economic uncertainties are also giving investors pause for thought. But this is also likely to heighten interest in the stable returns, whether contracted or regulated, available from the sector.”