Green energy growth fuels an urge to merge
The planned marriage of Tesla Motors and SolarCity is causing a stir in energy markets, with two of the most innovative companies in electric cars and solar energy aiming to take a commanding lead in green energy in the U.S.
But the combination is just one of many big deals that signal a banner year for mergers and acquisitions in the North American electric and natural gas markets, driven by fundamental changes in those industries.
In all, $69.6 billion in deals worth at least $50 million were recorded in the first six months of 2016 by the professional services firm PwC.
That’s more than the totals for the entire years of 2015 ($66.8 billion), 2014 ($67.7 billion) and 2013 ($30.4 billion), according to a new report from PwC, and bears out earlier predictions by analysts that power and utilities deals would continue to rise.
Mega deals topping $1 billion propelled the M&A surge, led by TransCanada’s acquisition of Columbia Pipeline Group ($13.1 billion) and Great Plains Energy’s bid for Westar Energy ($12.2 billion).
For PwC, value includes the total equity and debt of the companies involved in a transaction.
The Tesla-SolarCity transaction comes in at fourth place, worth $6.5 billion. The electric-car manufacturer said last week that it had reached a deal to acquire SolarCity, the leading U.S. installer of rooftop solar panels, after announcing its bid in June.
Elon Musk, the founder of Tesla and chairman of the SolarCity board, bills the arrangement as one that would create a powerhouse maker and seller of electric cars, solar systems and batteries to store power.
The acquisition is still subject to shareholder approval.
“We see a fairly strong deal environment,” said Kenyon Willhoit, director of U.S. power and utility deals for PwC, formerly known as PricewaterhouseCoopers. “It’s been a convergence of a number of themes that we’ve seen take hold in the industry over the last couple of years.”
Among those themes are record production of natural gas in the U.S.; increasing reliance on low-cost gas and renewable energy for electric generation; the extension of government tax breaks for solar and wind energy; and the need for new pipelines and transmission lines to deliver new sources of gas and wind power to markets.
Moreover, low interest rates continue to make financing deals especially attractive now.
“Our view is that we’ll continue to see good deal activity in the second half of the year,” Willhoit said in an interview.
Other recent developments include a May announcement of a merger between two Missouri and Kansas electric utilities — Great Plains Energy and Westar Energy, respectively — that would feature one of the largest portfolios of wind turbines in the U.S.
That’s no small consideration at a time when the U.S. Environmental Protection Agency (EPA) plans to regulate carbon emissions from electric power plants.
While the U.S. Supreme Court has suspended the EPA’s Clean Power Plan in response to lawsuits by 24 states challenging the policy, many utility executives expect government curbs on carbon to happen one way or another.
Meanwhile, gas, with lower emissions than coal, is gaining a bigger share of the U.S. electric generation market, a factor for TransCanada’s interest in Columbia Pipeline Group, which operates 15,000 miles of pipeline from New York to the Gulf of Mexico.
