Looking back at the global renewable energy industry in 2023, the newly installed capacity increased by nearly 50% to nearly 510GW, a record high. However, bucking this trend, renewable energy M&A activity saw its first decline in five years in 2023.
The renewable energy market is booming.
According to the International Energy Agency (IEA), the renewable energy sector has seen significant growth in 2023. The newly installed capacity of renewable energy increased by nearly 50% to nearly 510GW, setting a new record for 22 consecutive years of addition.
In 2023, the growth of installed renewable energy capacity reached record highs in Europe, the United States, and Brazil. At the same time, China's solar PV capacity in 2023 is on par with the global total increase in 2022, and China's new wind power capacity has increased by 66% year-on-year in 2023.
In addition, at the COP28 climate conference in Dubai in December 2023, countries agreed to triple renewable energy capacity by 2030.
Overall, there is a global consensus on the importance of renewable energy, which will further bring great impetus to the development of renewable energy.
M&A deals fell for the first time in five years.
According to GlobalData, the total value of M&A deals in the renewable energy sector in 2023 was about US$559 billion, down 27.0 billion year-on-year from US$771 billion in 20225%。
Regionally, the decline was most pronounced in the number of M&A deals in Asia.
The number of transactions in Asia fell by 61 year-on-year to 1,623 from 2,64786%;
The number of transactions in Europe fell by 21 year-on-year from 2,125 to 1,65994%。
In terms of technology types, solar, wind, and hydropower transactions saw the most significant declines, averaging around -35%.
The number of deals in the solar sector fell by 34 year-on-year from 2,366 to 1,54544%;
The number of transactions in the wind energy sector decreased from 1,692 to 1,176, or 3541%;
The number of transactions for hydropower fell from 845 to 538, or 3608%;
Only the number of geothermal project transactions increased, from 152 to 177 year-on-year in 2023.
Top 5 reasons why trading is down.
Combined with industry observation and analysis, changes in the macroeconomic environment, intensified industry competition, declining return on investment, increased investment in the global energy transition, and weakening investment willingness of oil companies may have combined to lead to a decline in renewable energy M&A transactions in 2023.
Changes in the macroeconomic environment were a significant contributor to the decline in renewable energy M&A deals. High interest rates, geopolitical risks, and recession fears have made investors more cautious, reducing M&A activity. At the same time, high interest rates also increase the cost of financing for enterprises, which in turn affects the viability of M&A transactions.
Increased competition in the renewable energy sector has made M&A transactions more difficult. In recent years, the number of companies entering the renewable energy industry has increased significantly, including traditional power companies, oil companies and private equity**, which has intensified competition in the industry, narrowed the range of M&A targets, and increased the cost of M&A transactions.
The declining return on investment of renewable energy projects has also made M&A deals less attractive. With the advancement of technology and large-scale application, the construction cost of renewable energy projects has been decreasing, but at the same time, the level of electricity prices has also been declining, coupled with the M&A premium, resulting in a lower return on investment. As a result, some companies prefer to develop new projects on their own, rather than reaping profits through mergers and acquisitions.
Global investment in the energy transition continues to grow, reducing the urgency of M&A deals. In 2023, global investment in the energy transition reached a record 1$8 trillion, up 17% year-over-year, allowing companies to gain growth opportunities through independent investment without the need for mergers and acquisitions to scale.
Oil companies' willingness to invest in renewables has weakened. In 2023, some oil companies are more inclined to invest their profits in buybacks and mergers and acquisitions in the oil industry, while the investment trend in renewable energy projects has slowed significantly (e.g., bp, shell), and the incentive for oil companies to participate in renewable energy M&A transactions has decreased.
In the long run, the renewable energy sector has huge development potential, and M&A transactions are still the main option for global energy investors, and with the further improvement of the industry environment, renewable energy M&A transactions are expected to resume growth in the future.
Epilogue. According to Guofu's long-term experience in risk analysis of overseas new energy investment and M&A, although derivative innovation models such as EPC+EF and RTB+EPC have emerged in the field of overseas renewable energy, greenfield investment and M&A transactions are still the two mainstream business models for most renewable energy developers.
Compared with greenfield investment, M&A transactions have the advantages of high efficiency in time and capital utilization, fast entry into new markets, and proprietary risks under specific transaction models, so they are more suitable for developers with strong financial strength, pursuing scale growth, and having more mature M&A experience and operation system.
*: Guofu Consulting Author: Zhou Jing.