Mergers and acquisitions in the European power and utilities sector fell 1% between 2016 and 2017, as pool prices and electricity demand stayed low, according to the EY report Power transactions and trends: 2017 review and 2018 outlook.

European deal value was down 1% on 2016 levels, at $50.3bn (£36.49bn), recording an 11% increase in volume to 213 deals. Renewables contributed 30% of total deal value, with networks accounting for 27%, and generation 26%.

Rennie says: “Low pool prices, flat electricity demand and ongoing impairments meant 2017 was another challenging year for M&A in Europe. However, some of Europe’s largest integrated utilities moved to transform their investment strategy and business models. We anticipate moderate economic growth in 2018, particularly as investment in renewable assets continues and new energy becomes increasingly mainstream within the electricity system.”

European investment highlights for 2017

• Renewable assets remained investment priorities, with deals in clean energy growing 24% in value and 29% in volume.
  Nuclear phaseout continues with Germany closing another plant in December and Switzerland voting to shut existing nuclear and not build any new plants.
  More investment in battery technology will help regulate grid frequency amid growing use of wind and solar.
  Generation deals doubled to 17, contributing 26% to deal value. This is up from seven deals that contributed just 1% of total deal value in 2016.  Much of the increase in value is due to the acquisition of 47.12% of Uniper shares by Fortum

EY said it expected five trends to emerge in European power and utilities transactions. These were:

• Consolidation in electricity retail: EY predicted this trend would be strong in the UK as the government moves to limit the cost of electricity tariffs will further tighten retailers’ margins and prompt consolidation within Europe.
• Continued investment in renewables: An estimated 110 GW of renewable energy is expected to be commissioned across Europe between 2018 and 2025, requiring an annual investment of $18b (£13bn).
• Opportunities in batteries and gas: About 80 GW of coal and nuclear capacity will go offline in Europe by 2025, increasing the need for gas generation, battery storage and other digital capabilities to improve system flexibility and reliability.
• More interest in new energy: Utilities will increase investment in new energy technologies to take advantage of changes within power and utilities and other sectors. For example, E.On is partnering with Danish electric vehicle (EV) charging startup Clever to invest US$12m (£8.7m) in a network of fast-charging EV stations across Europe.
• Growing sector convergence: EVs are also one of the drivers behind more interest in energy from investors in adjacent sectors. For example, Shell plans to develop EV charging infrastructure across London, while French oil and gas company Total has acquired a 23% stake in Eren, a renewable energy company.

Related content:

UK renewables: expect mergers and acquisitions, says investor ForesightJohannes Teyssen: New energy companies focusing on regulated businesses and distributed generation are less likely to look at mergers and acquisitions to grow their businesses, according to Johannes Teyssen, chief executive of E.On.New players will manage energy volatility - Having data and control over energy assets is better than ownership, says Origami Energy chief executive Peter Bance, because you can chase value.

Not a subscriber?  More details here