Australia will be one of the top five countries for energy investment and M&A, a new survey has found.
The study for Change: Investing in a smarter energy future, by law firm Pinsent Masons and Mergermarket, surveyed 250 senior executives from 200 businesses with revenues of $US1 billion ($1.3 billion), and 50 investment groups such as banks, private equity firms, and wealth funds. It found approximately 90 per cent of utilities surveyed indicated they are considering joint ventures or acquisitions in order to respond to the changing energy market. More than 80 per cent of respondents also expected M&A in the sector to increase over the next 12 months.
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However, a third believed that ongoing uncertainty in government policy and legislation was a major obstacle to investment, a factor which saw Australia fail to rank within the top 15 countries with a clear smart energy policy, behind China.
“Countries without a cohesive energy policy are usually in turmoil when it comes to issues around energy distribution and management,” one unnamed chief financial officer of an Australian utility said.
“For investors looking to enter that market with smart energy solutions its means a lot of uncertainty.”
Investors, rather than utilities, will be the most active in Australia, with 26 per cent of investment groups surveyed stating they will target the country, while only 11 per cent of utilities put forth interest in the market.
This view of Australia as an investment hub is supported by EY’s most recent renewable energy country attractiveness index data, which ranked Australia fifth globally, ahead of France and Japan, but trailing China, India, the US and Germany.
EY global power and utilities corporate finance leader Ben Warren also forecast greater collaboration and M&A in the energy sector.
Approximately 90 per cent of utilities surveyed indicated they are considering joint ventures or acquisitions in order to respond to the changing energy market Photo: Janie Barrett
“Collaboration is the answer, whether through partnerships or acquisitions,” Mr Warren said.
Deals are expected to continue their growth trajectory, as the sector records a doubling in annual deal values from $US150 billion to $US300 billion between 2012 and 2016, while deal volumes rose 45 per cent within the same period from 527 to 763.
“Robust performance at the start of the year – with 380 deals recorded in the first half of 2017 – suggests that year will likely see similarly high levels of deal activity,” the report stated.
The big winner in the M&A rush is expected to be smart energy technology startups, which utilities will acquire to gain a foothold new growth areas or create supply chain synergies.
“Traditional utilities – including the big ones – are looking for new business areas,” Pinsent Masons partner Dr Torsten Wielsch said.
“Declining returns from electricity sales means they are trying to expand into other business fields, and one of these is smart energy companies such as software developers,” Dr Wieslch said.
This has already been seen in Australia, with companies like Origin partnering with startups such as Power Ledger and Bidgely, which provide demand management and consumer energy efficiency technology.
One in three utilities surveyed said they will carry out either an acquisition or investment in order to gain access to these new technologies.
“Utilities will look to use smart meter data in their downstream supply activity to understand consumers better, enhance customer experience, and enable new product and service lines,” Pinsent Masons technology partner Chris Martin said.
“The best ones will also use it in terms of upstream activity to optimise the efficient management of energy supply and demand,” Mr Martin said.
In the short term, utilities will look to smart meter technologies and end-user communications; in the longer term, cloud based management systems and virtual power plants are forecast to be the main acquisition focus.
Investors are mainly looking to data analytics and battery storage companies as their core focus.