February 2018

A hot year ahead for Australian renewables M&A

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A series of asset sales in January 2018 has kick-started what we expect to be a major year for mergers and acquisitions in the Australian renewables sector. While 2017 saw plenty of transaction activity and was a record year by our estimates, 2018 could easily eclipse it.

We count 37 assets, which fully or partially changed hands during 2017, involving 22 sellers and 20 buyers. In total, these deals accounted for 4.4 GWac of capacity. That is a big number; it is almost equal to Australia’s current total of solar and wind operating capacity. And it is noteworthy that almost all of the transactions were for development projects.

Overtaking this number in 2018 will not be an easy task. But 614 MWac of deals have already been signed in January, a very strong start for the year. The beginning of the year is typically quiet, but January’s activity was the fourth biggest for renewables M&A in Australia over the past 12 months. And all the deals in January were for solar projects, which makes last month the second highest for solar deal flow.

On an annualized rate, January numbers suggest the total for the year could exceed 7 GWac, although deals of course don’t really work like that. Activity will likely fluctuate throughout the year, but our view is that there are plenty of development companies with assets to sell and a lot of buyer interest, predominantly from infrastructure funds.

Figure 1: Asset transactions by month, MWac

Recent deals

Some major players were active in the deal market in January with a new entrant from overseas and three project developers executing their long-term strategies. ESCO Pacific, one of the largest solar portfolio holders in Australia sold two solar projects to Elliott, a US-based hedge fund. Elliott is new to the Australian market and will make a big impression by immediately moving the Susan River and Childers projects (98 MWac and 75 MWac respectively) into construction. The projects will be equity funded by Elliott and built by Greek EPC contractor Biosar, also new to the Australian market.

Canadian Solar also made waves early in the year. The end of 2017 was about divestments for the vertically-integrated panel manufacturer/project developer/EPC company, but in January, Canadian Solar bought 51% of a series of developing projects from Photon Energy (which had also been one of the largest solar development companies in Australia). The projects that changed hands were Gunning, Maryvale, Suntop and Mumbil. Photon retained a minority interest and will co-develop the projects with Canadian Solar. Polpo Investment Limited also retained an interest in the latter three.

The final January deal saw Terrain Solar sell the 30 MWac Molong project to TEC-C, an Australian power investment company. Terrain has a wide portfolio of early-stage projects, and we will likely see them feature in many more deals to come.

Figure 2. January 2018 transaction details

Ownership summary

This level of early-year activity has shaken up the Australian solar ownership numbers. ESCO Pacific now holds fourth spot by size of solar portfolio in MWac, down from the third spot as a result of successfully pursuing a develop and sell strategy. Photon Energy, following the same approach, drops to nineteenth. ESCO remains one of five companies that has a public portfolio in excess of 1 GWac.

On the buyer side, Canadian Solar climbs to seventeenth by solar portfolio size, showing both their project development ambitions and also pointing towards future market share increases for Canadian Solar panels in the Australian utility-scale solar market. Elliott, a newcomer to the country, immediately enters into the top 40 solar companies.

Figure 3. Equity ownership by company, MWac

Where Elliott makes more of a splash is in the construction section of the utility solar market. Given the Susan River and Childers projects will be funded through Elliott’s access to equity, they are able to immediately start work building the assets. When we consider the market share of companies that have solar assets either in operation or under construction, Elliott jumps straight to the fifth spot.

Figure 4. Market share of solar projects, operating or under construction (equity ownership)