Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Green Dealing

Renewable M&A lives on despite death of Treasury cash grants.

April 2012

greater ability to leverage the stable financial benefits.

Many state governments have rationalized their regulatory approval processes as well. Simpler approval processes lead to greater certainty in planning and fewer costly delays, ultimately benefitting the renewables market.

Game-Changers Emerging

Other technological innovations could remove additional barriers to renewable development. Because of the intermittency of wind and solar, utilities can’t rely on these sources to meet baseload requirements. This limitation, along with inadequate transmission capabilities, constrains M&A deals, particularly interstate ones. Advances in large-scale energy storage would remove this constraint, inviting all sorts of transactions as power producers and utilities redefine their operational boundaries and rebalance their generation portfolios. Notably, such advances might be closer than we think. For example, AES built a 98-MW wind farm equipped with 32 MW of battery storage in West Virginia; Duke Energy is in the process of adding 36 MW of battery storage to its 153-MW Notrees wind power project in West Texas; and Hawaiian Electric recently added battery storage to its solar photovoltaic project on the island of Lanai. 5

Ironically, one of the most powerful game-changers on the horizon is largely being overlooked: generational change. Younger people are demanding cleaner, greener sources of energy for their own consumption as well as holding their employers to higher standards regarding sustainability and environmental stewardship. According to a recent study by Johnson Controls on global workplace innovation, members of Generation Y, defined as people between the ages of 18 and 25, are demanding a greener work environment, with 96 percent reporting that they want an “environmentally aware” workplace. More specifically, 70.3 percent said that the workplace should have recycling bins, 52.7 percent said stand-by modes or devices are musts for all electrical equipment, and 47 percent said solar panels should be on site. 6

In addition to broad policy and market conditions, several factors within the sub-sectors of wind, solar and biomass also point to continuing deal volume.

Solar Rise: In the solar arena, the need for diversification and government incentives are primary M&A drivers. Diversification is important because some solar companies need to build capabilities across the value chain to compete in a small and fragmented market. Company strategies to become one-stop solution providers have been, and will continue to be, a boon to M&A activity. Government incentives too are aligned to support continued solar development. Over the past few years, the ITC and cash grants helped small players enter the capital-intensive solar industry. This led to a ripe M&A market, as large developers were able to acquire a mature pipeline of projects from smaller entrants. It also allowed a broader class of investors to use the tax incentives and participate in the industry. Today, a continuation of the ITC until 2016 is supporting further M&A activity. These government incentives will remain an important enabler until solar reaches grid parity.

State RPS and solar-specific mandates are also causing utilities to emerge both as prominent buyers of solar capacity and developers of new projects through JVs. New trends such as utility-scale solar and participation from non-energy companies