Ernst & Young (EY) released a report detailing transactions in power and utilities (P&U) for Q3 2021, which shows that utilities are putting significant financial support behind their environmental, social and governance (ESG) initiatives. Investments in gas and electricity networks, the broader energy transition, and energy services; including storage, EVs and waste-to-energy, accounted for $57.2 billion of the quarter’s total of $72.8 billion in deal value.
This trend of a higher focus on renewable deals began its ramp up in the first half of 2020. EY strategy and transactions partner, Miles Huq said individual deals in renewable energy are typically lower in value, so the total value driven by these transactions shows continued investor confidence.
That mark of $72.8b in deal value represents the highest level of investment in the last eight quarters, showing the potential of a return to pre-pandemic levels of deal activity. Corporate investors acquired $8.3b of renewable assets in Q3, as compared to $3.2b acquisitions by financial investors.
There were 53 deals in the Americas, which includes Central and South America, with cumulative deal value of $23.9b, a 69% increase from Q2. Value was driven by very large “megadeals” in energy services and networks assets. Renewable assets drove deal volume with 17 deals.
The report also asserts that utilities are trying to sell off their fossil fuel generation assets, instead focusing on keeping nuclear, renewables and regulated businesses in their portfolios. In return, financial investors are jumping at discounted assets that are critical for grid stability. To illustrate this point, the authors point to the Public Service Enterprise Group selling off its 13 gas-fired plants to ArcLight Capital, a private equity investor, for $1.9b against the assets’ book value of $4.5b.
And while emergent climate and renewable tech historically have been slow in drawing large investment activity, that narrative may be changing, as Q3 saw significant investments in hydrogen technologies. According to the report, gas utilities are increasingly betting on hydrogen to help them transition to clean energy companies.
For example, the report outlines that Avangrid announced plans to construct a 20 MW electrolyzer and hydrogen storage facility for its Connecticut gas and electric utilities, powered by renewable energy from offshore wind. Across the country, American utilities have announced more than 26 hydrogen pilot projects.