Even as Clean Energy Deal Flow Jumps 40% in 2011, the Sector Has “Rolling Uncertainty”

With billion-dollar deals becoming the norm in clean energy, investors have “confidence” in the sector. But after rebounding from the 2008 financial crisis, companies are facing a new range of diverse challenges.

If the 2008 financial crisis was a swift punch to the face for the clean energy industry — and for the whole energy sector — the global uncertainty of 2011/2012 is more like a rolling series of blows to the body. In both cases, the sector continues to stand back on its feet. But it’s still going to be a hard fight to the top.

In the aftermath of the financial implosion in 2009, mergers and acquisitions in the sector fell by one third, venture capital capital investments fell 50%, and total global investment grew by only 4%. Today, as markets have recovered and deal flow has increased, we’ve seen a massive surge increase in investment — with global investment up by two thirds since then.

However, even while leading investors continue to say that companies not investing in clean technologies “risk becoming irrelevant to the marketplace,” there are still plenty of risks involved for companies doing deals. Those risks, which range from Europe’s debt crisis to the political freeze in the U.S., are creating what experts call “rolling uncertainty.”

As the global advisory firm PricewaterhouseCoopers explains in a new report on 2011 mergers and acquisitions in clean energy, decisions are being made with a far more difficult range of options to consider:

The advice in the first half of 2009 was ‘if you don’t have to be in the market, stay out of the market. Wait a few months until things improve and confidence and a sense of calm is restored. Then go with your deal.’

But that all assumes you have a ‘rear view mirror event’. In 2012 there is no equivalent. Instead, there is great uncertainty about whether things will be better or worse in six months time. In this environment, perhaps paradoxically, a complete brake on dealmaking makes less sense. If a deal is highly strategic and mission critical, then parties may feel it is worth doing if it can get done on the right terms.

With the uncertainty over how long the constraints will persist, staying out of the markets just in the hope that things will improve cannot be assumed to be the right strategy.

Surrounded by this swirl of complicated factors, businesses are making tough decisions about how to enter or increase their participation in the fast-moving clean energy market.

For example, the overcapacity in solar has been great for driving down the price of equipment, but it’s made investing in solar manufacturing very tricky. In 2011, the French oil giant Total bought a 66% stake in the high-efficiency solar producer SunPower for $1.3 billion. While SunPower has a strong project development pipeline and the highest efficiency technology on the market, it has been hit hard by the flood of cheap modules like virtually every manufacturer. Total, the 14th largest oil and gas company in the world, says it will “turn around” SunPower. But a chronic oversupply of modules and a constantly changing policy environment make the situation very tenuous — even with SunPower’s strong technology and brand advantage.

This uncertainty hasn’t stopped clean energy deal flows. In fact, they increased by 40% in 2011 to $53 billion, according to the PwC report. And for the first time, efficiency, wind, solar and bioenergy surpassed activity in hydro — a mature sector where enormous (and often environmentally questionable) projects are more common. These “new renewables” are now reaching the scale where billion dollar mergers and acquisitions are more common.

As we predicted in last year’s report, we are seeing particularly strong momentum behind deal activity in the solar and energy efficiency sectors. Buoyed by the increase in big transactions, deal value in these two sectors has nearly doubled year on year. Together, they account for the vast majority (79%) of the US$15.3bn increase in the total value of all renewables deals.

What does all this mean? PwC expects deal flow to increase again in 2012. That means we’re likely to see more consolidation — particularly in the wind and solar sectors — as upstream companies deal with an oversupply of solar panels and wind turbines, Chinese players look to branch out into new markets, and emerging companies hook up with more mature corporate partners.

One other thing to look for in 2012: Expect critics to label some of these challenges — some of which will lead to the downfall or restructuring of companies — as a “failure” of clean energy. In fact, this is just the natural course for a fast-growing, disruptive global industry pushing forward in a tumultuous environment.

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5 Responses to Even as Clean Energy Deal Flow Jumps 40% in 2011, the Sector Has “Rolling Uncertainty”

  1. Calamity Jean says:

    The link at the end after “Related Post:” loops back to this story.

  2. prokaryotes says:

    Today is an interstign article in SPIEGEL about buying an elctric car.

    Be careful very odd translation.

    To sum it up, 107 electrc cars sold in germany in 2011,( which amounts to 0.01 % of all cars sold in 2011 – of 1.3 million respectively). The main obstacle are car dealers, which either do not advertise electric vehicles, or do not have current models ready for testing.

    A study was set up where EV’s competed correctly with conventional cars and 75% of testers acknowledged to consider the next time when buying a car, to buy an EV.

    Most people who test EV’s are positive surprised how good they are actually.

  3. prokaryotes says:

    There are more electric cars sold in germany, but not to private individuals. The figure was about private entities buying EV’s.

  4. John Tucker says:

    Even past over supply/flooded market issues now opposing the Chinese manufacturing juggernaut will be difficult once, if ever a serious renewable course is ever embarked upon:

    Rare minerals dearth threatens global renewables industry

    Terbium, yttrium, dysprosium, europium and neodymium are widely used in the manufacture of wind turbines, solar panels, electric car batteries and energy-efficient lightbulbs. But because these “rare earths” are mined almost exclusively in China, it is becoming increasingly difficult and expensive to source them in the required quantities. [ ]

    More importantly China has not shown competence in producing technology in a clean, low carbon manner. [ ]

  5. Brian R Smith says:

    Will Congress renew the production tax credit? And if not?

    “Minnesota’s wind power production capacity grew by more than 500 megawatts last year, half the output of the Prairie Island Nuclear Plant. Wind now provides about 15 percent of the state’s electricity.

    This year could be just as good, with some parts of the state seeing as much turbine construction as they in 2011. But if Congress declines to renew the production tax credit — key federal subsidy for wind energy — the industry could nose-dive in 2013.

    A bill to extend the credit so far hasn’t gone anywhere in Congress.

    In a regulatory filing with the Minnesota Public Utilities Commission the nation’s largest wind power provider, officials for Twin Cities-based Xcel Energy, said it “appears unlikely” that Congress will extend the tax credit. Without the subsidy, the cost of wind energy will soar, Xcel regional vice president Laura McCarten said.

    “Rather than $40 a megawatt hour it would be s$70 a megawatt hour, which puts it much more expensive than say, natural gas,” McCarten said.

    Xcel Energy intends to buy more wind energy this year — as much as 300 megawatts. But if the tax credit expires, company officials say they will reassess its wind power program for next year. ”

    from a Minnesota Public Radio report,

    “Wind power industry could lose sails if key subsidy is not renewed”