PRINT THIS PAGE Turning up the heat: an insight into M&A in the renewable energy sector in 200804/06/2008. Source: KPMG. 
KPMG's report on M&A in the renewable energy sector has revealed an explosion in the number of deals. Analysts estimate that 2007 saw $55.7bn in M&A transactions, up by 47 per cent on the year before. Infrastructure funds, private equity firms and other financial investors are likely to be the most active M&A participants after power generating companies, according to this survey. While the reasons for this are varied power generators are buying to meet regulatory targets, oil and gas majors are buying in the hunt for cleaner fuels and financial buyers are searching for stable long-term cash flow - the overall effect has been to push valuations up to record levels. In fact, 50 percent of respondents, and nearly two-thirds in Europe, agreed that there is a real risk of a bubble in the renewable energy sector.
Despite this, the survey shows that competition for deals is likely to increase, as will the pace of consolidation, but at what cost? Some industry players appear to be ignoring the many risks involved in investing in renewables, such as the ability of national governments to change their green energy policies. On a more micro level, there are other issues including the fact that many sites have difficulty connecting to electricity grids and there is a shortage of turbines to build new wind farms. All this is also putting aside one the most basic risks of all - that investors are putting money into technology that could become obsolete very quickly.
Yet, while teething problems certainly do exist, early investment made now in renewables could prove an insightful move in years to come. It is clear energy companies and investors should review their acquisition strategies and evaluate the risks and opportunities. The activity that I'm currently seeing points towards exciting times ahead for all those involved in the renewable energy sector.
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KPMG the audit, tax and advisory firm is the US member firm of KPMG International. KPMG International's member firms have 123,000 professionals, including more than 7,100 partners, in 145 countries. For more information go to www.us.kpmg.com.
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