Global renewable energy deals climbed 40 percent to a record high of $53.5 billion last year from $38.2 billion in 2010, as solar, wind and energy efficiency overtook hydropower as the main deal drivers for the first time, a report said on Monday.
Historically, hydro power has dominated renewables deal flow, but deals worth $1 billion or more in wind, solar, biomass and energy efficiency have outnumbered hydro by seven to one, the PriceWaterHouse Coopers report said.
The renewables market is maturing, fuelling more consolidation, and a rethink of the role of nuclear in many countries after the Japanese nuclear crisis last year provided an extra boost to renewables generation in certain markets.
"Sustained high deal numbers and record total value reflect a maturing of the sector," said Paul Nillesen, PwC renewables partner.
"The trend is all the more noteworthy given the uncertainty in the market and in government policies on renewables. We believe that deal flow will continue to be significant in the medium term."
Global clean energy investment hit a record $260 billion in 2011, which was mainly driven by a solar boom, a Bloomberg New Energy Finance report showed.
But renewable energy, excluding hydropower, will account for just 5 percent of the world's total energy production by 2030, according to BP estimates.
WHAT LIES AHEAD?
Solar and energy efficiency deals accounted for 79 percent of the $15.3 billion rise in the total value of renewables deals. One in three deals last year was solar and the overall deal value for the solar sector was up 56 percent to $15.8 billion from $10.2 billion in 2010.
Falling solar prices are making solar power more economic and closer to grid parity in some markets.
The entry of pension and insurance funds, most notably a $1.1 billion investment by Danish pension insurance groups in a 50 percent stake in Dong Energy's Anholt offshore wind project, shows the renewables market is maturing and secondary markets have been created, with assets sold for a second or third time.
But the renewables sector could face a tough 2012.
U.S. and European manufacturers will be under increasing cost pressures and some Chinese manufacturers will also face heavy debt and feel competitive strain, PwC said.
Significant overcapacity in China could result in a succession of tie-ups within and between the main manufacturing territories of the United States, Germany and China, leading to a smaller number of big global players.
As well as a smaller number of global players in the solar market, PwC expects consolidation among larger players in the wind power sector. Recent profit warnings from Danish company Vestas are the most high profile example of the challenges facing some wind power companies.
Continued uncertainty about the eurozone economy will make the deal environment much more difficult for 2012. A deeper crisis would dampen deal flow further, but Nillesen said market uncertainty might not block the biggest deals.
"The potential for further destabilisation domestically, or at an inter-governmental level cannot be ruled out, but if a deal is highly strategic, and mission critical, then parties will still feel it is worth doing on the right terms," he said.