EY AP Power transactions and trends: 2016 review and 2017 outlook

Asia-Pacific P&U deal value reached US$23b in Q4, more than four times that achieved in Q3 (US$5.7b). The region’s sector offers diverse investment opportunities, including development of conventional generation assets in countries with a supply and demand imbalance, including India, China and Indonesia; energy reforms in Japan, South Korea, the Philippines and Malaysia; a number of large T&D opportunities; and an increasing number of opportunities in renewable generation.

Given that Asia-Pacific is one of the only regions that offers a range of diverse investment opportunities with a stable political environment for investment, we expect capital to flow into this region in 2017. As traditional, low complexity, large-scale deals become scarce, investors will need to tackle more complex deals.

Q4 2016 highlights

  • Integrated utilities and traditional generation assets attract multibillion-dollar investments: in Q4, utilities from China and the Philippines acquired US$8.4b of generation and integrated utility assets. In China alone, utilities bought US$3.4b of generation assets, taking advantage of low valuations as the shift toward renewables continues. In December, India’s National Thermal Power Corporation announced it would replace 11 GW of old coal power generation capacity with new, more efficient coal generation capacity by 2020 at an estimated investment of US$500b.
  • Inbound renewable energy opportunities attract diverse investors: in Q4, brownfield deals totaled just US$603m compared with US$1.2b in Q3. In comparison, greenfield renewable energy projects increased in value from US$3.5b in Q3 to US$4b in Q4. In November, Irelands Mainstream Renewable Power agreed to build and operate wind projects in Vietnam worth more than US$2.2b. In December, Shell announced plans to form a new company to invest in renewable energy in the Philippines, while Apple signed PPAs to acquire 285 MW of wind energy from China’s Goldwind.

  • Chinese utilities diversify overseas: 2016 saw Chinese utilities acquire assets worth US$12b in cross-border transactions, including US$4.3b in Q4. Notable deals included Shanghai Electric’s US$2.3b acquisition of a 66.4% stake in Pakistan’s K-Electric and China General Nuclear Power Group’s purchase of 14 wind energy plants from Ireland-based Gaelectric.

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