Deal-making in the wind energy industry is set to flourish as profitability has returned and the industrialisation of the industry continues. Recent deals between Nordex and Acciona as well as the GE acquisition of Blade Dynamics are indicative of a trend we anticipate will continue.
Cash is being put to work as companies seek lucrative returns on undervalued technology providers who have a solid intellectual property (IP) position, technology which is at least TRL 6 already and considered on a solid path to 'bankability', as well as a clear path to enabling lower levelised cost of electricity (LCOE).
OEM CONSOLIDATION
We're not quite done yet in the wind turbine and sub-component manufacturer space. The level of investment required for development and commercialisation of a new technology which has a meaningful impact on lowering LCOE is growing.
Fifteen years ago, a new technology which resulted in a 5% net LCOE reduction could be fielded with an investment under USD 50 million (EUR 44.4m). Today, that same 5% reduction requires a total investment to reach TRL9 on the order of USD 350 million when considering the non-recurring engineering/R&D expenditure plus the commercialisation and supply chain cultivation costs.
Companies who have been successful in finding the investment to get from TRL 2/3 to TRL 6 should have little difficulty in demonstrating value to larger players in the near-term market environment.
Of course, private equity firm Centerbridge is on the lookout for a buyer for Senvion who can turn their EUR-1-billion investment into a EUR-2-billion windfall. We anticipate an Asian regional player who has had success in the Chinese and/or Indian domestic market, but seeks a greater international footprint and credibility in Western markets to emerge as the likely bidder.
Beyond this, the general shift away from design licensing in the past to technology partnership should see a flurry of equity investments being made in regional companies who have capability to scale up globally, but lack a near-term order book and the means to organically grow in that fashion.
SERVICES
Of course, consolidation in the Services sector is also likely due to the desire for major operators and utilities to have an in-house capability to manage their ever increasing project portfolios. Additionally, vertical integration of service providers who can manage logistics, complete inspections, perform service, recommend and implement upgrades, as well as monitor status on behalf of the project owner will be favored. Turnkey service providers who are integrated or partnered will significantly benefit.
PROJECT ASSET ACQUISITION
We also anticipate some unprecedented deals for operating and developmental assets next year as the pace of capacity additions may see regional fluctuations due to policy uncertainty. On the whole, demand for assets is set to continue growing on average, and capacity is set to approach 400 GW globally by the end of 2016.
New entrants into the market are also likely as Energy Sector companies look to diversify their asset portfolio in recognition of the growing trend and cost competitiveness of renewables.
Additionally, offshore projects should begin to mature to a point where YieldCos will take serious notice, so watch for this expansion.
(USD 1 = EUR 0.888)
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Wind industry technology maturity. Source: Totaro & Associates. All rights reserved.
