Will the clean energy transition drive a late surge in EUMI deals this year?
New Energy M&A deals commencing were up 100% QoQ, but down 20% over the full financial year (YoY).
Despite an overall slowdown in M&A activity during the first half of 2023, investment in the energy, utilities, materials, and industrials sectors is expected to surge as the global push to meet energy transition goals intensifies.
Companies around the world – across all industries – are considering how they can transform their business models in line with reducing carbon emissions, pursuing net-zero strategies, digitalization, and changing consumer preferences.
The challenge for businesses during this transformative period is striking the right balance between generating short-term value for shareholders and building the resilience and adaptability required to thrive in an advanced-technology, low-carbon environment.
To thrive in this transition, companies need to be flexible and quick to adjust their supply chains and overall operations. Those who take early and decisive action to transform their business models – through mergers and acquisitions or other transactional activity – will be in the strongest position to create value and achieve sustainable, long-term success.
Renewables a hot commodity
Renewables acquisitions are a hot commodity, increasing competition for assets amid a push to meet aggressive renewables targets and net-zero goals.
This upward trend is playing out across the globe. In the past four years, Europe has seen the highest renewables deal activity with approximately 40% of deals involving a Europe-based target. North America has seen the second highest activity levels, followed by Asia Pacific (McKinsey).
Various players – from individual developers and financial institutions to oil & gas and utility companies – are actively seeking to acquire to meet distinct strategic purposes. As such, there is a strong anticipation of major growth in M&A activities within the renewable energy sector, although buyers should be wary of factors like energy security, market fluctuations and rising electricity costs.
Highly competitive environment for critical minerals assets
“A typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant. Since 2010 the average amount of minerals needed for a new unit of power generation capacity has increased by 50% as the share of renewables in new investment has risen.” (International Energy Agency)
The transition to clean energy brings with it a new set of challenges. As clean technologies like electric vehicles, solar panels, and wind turbines start to be used at scale, competition for the minerals required to support these technologies is increasing. Minerals like copper, nickel, lithium, cobalt and rare earth elements are in high demand.
Lithium, as one example, has such high prices currently that even giants like Rio Tinto aren’t willing to purchase them yet – despite the strong interest. They anticipate a shortage of the battery mineral, noting that ‘committed lithium supply and capacity expansions will only contribute about 15% to supply growth over the 2023-2050 period’ – the rest will need to come from new projects.
Ensuring a secure and stable energy supply will be a key driver of capital flows, particularly for these scarce minerals that are essential for battery production and energy storage.
To maintain competitiveness, miners are turning to diversification in terms of geography and commodities. Recent examples of such deals include Glencore's proposed acquisition of Teck and Vale's plan to separate its Energy Transition Materials business and sell a 10% stake in the unit to unlock value from their portfolios (PwC).
Mining leaders should urgently acquire assets essential for their companies' future growth as opportunities become scarcer. M&A provides a way for miners to scale up, optimize their portfolios, and achieve synergies in a dynamic market.