Recognising trends

Global Outlook 2012

M&A in Renewable Energy

mm_cover_U2.indd 1 29.05.2012 15:57:06

Content

Foreword 3

Spotlight: Germany 4

Spotlight: Spain 6

Spotlight: Italy 8

Spotlight: Growth markets 10

Spotlight: Grid parity 16

Methodology 19

Survey findings 20

Respondent information 41

Historical data 44

Rödl & Partner Contacts 49

Recognising trends

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Foreword

Rödl & Partner are pleased to present the third edition of M&A in Renewable Energy – Global Outlook 2012, published in association with mergermarket. Based on interviews with 100 renewable energy M&A professionals from the corporate, private equity and investment banking communities, this study provides a comprehensive view of the renewable energy market from those who know it best.

The renewable energy sector has proved remarkably resilient despite eurozone volatility,

constrained bank lending and changes to government incentive programmes. In 2011

the sector saw 210 deals worth €25bn, representing a 135% increase in value and a

modest 2% increase in volume against 2010.

Respondents are optimistic that this upward trend will continue, with the large majority expecting

an increase in M&A over the next 12 months. Most deals are expected to take the form of strategic

acquisitions rather than private equity buyouts during this period, reflecting acquirers’ appetite for

technology and know-how and their desire to grow market share.

The wind and photovoltaic (PV) subsectors are expected to see the most significant M&A activity,

reflecting their rapid sophistication and gradual move toward grid parity. Specifically, respondents

believe Germany, Italy and Spain could achieve wind and PV grid parity by 2015 for 2016, while

Germany in particular could achieve wind grid parity as early as 2014.

A central theme of this year’s study is the rise of emerging markets: 91% of respondents this year

– compared to 67% last year – describe emerging markets as key to the renewable energy sector’s

growth, and an additional 90% say the Asia-Pacific region will be a significant market for M&A this

year, if not the most significant (46%).

These are all encouraging signs for potential investors, but the road ahead is not clearly paved.

Government support – a key external driver of M&A, according to three-quarters of respondents –

has been shaky in recent months, with some European governments scaling back incentives in

response to sovereign debt concerns. Yet 84% believe governments are actively promoting renewable

energy development, especially now that rising demand and high commodity prices have triggered

a sharper focus on energy independence and fossil fuel alternatives in many nations.

In addition to the findings outlined above, this report examines the major drivers of renewable energy

M&A today, including regulatory changes in key markets and macroeconomic developments. We

hope you find this third edition of the M&A in Renewable Energy – Global Outlook 2012 both

interesting and informative. As always, we welcome your feedback.

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Christian Rödl Martin WambachManaging Partner Managing Partner

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Spotlight: Germany

The world is watching Germany carefully. The country’s renewable energy industry is in a state of transition. Sparked by political influences in the aftermath of Fukushima and technological progress, regulatory developments are forcing extraordinary levels of growth and demanding ever greater efficiencies. This transformational period will help to shed light on which technologies and methods work best, while also generating the necessary investment to deliver further technological advancement.

As often happens when industries are in a state of flux, there have been growing pains in Germany.

The photovoltaic space has seen a raft of insolvencies and consolidation in the wake of reduced feed-

in tariffs and price pressures on cells and modules. Those companies with access to capital are looking

to diversify or enter new markets. “Larger players,” says Anton Berger, Partner at Rödl & Partner,

”are looking at international markets, such as Romania or Bulgaria, or even further afield to India or

South Africa.” At the same time, several smaller players are now seeking buyers or investors, creating

an opportunity for new or foreign players to enter the market. In January, Chinese firm LDK Solar

purchased German company Sunways for €53m, the first acquisition by a Chinese solar company

in Germany and a coup in terms of securing a European distribution network.

Although there is serious upheaval in the solar industry, the tariff cuts are ultimately geared towards

greater efficiency, and growth rates are high across other renewable segments. Though, as Kai

Imolauer, Associate Partner at Rödl & Partner, points out, some of the larger players have been late

to react. “The large public utilities like RWE, E.ON, EOS and Vattenfall didn’t realise renewable energy

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would come to represent such a major proportion of the energy mix. They were sleeping,

but now they’ve woken up and are looking for acquisitions to expand their footprint.”

One such example occurred last November, when Vattenfall Europe Windkraft purchased the

wind power business belonging to South Korea’s Busan Mutual Savings Bank for €81m. Elsewhere,

Swiss-based EOS Holdings has also targeted aggressive expansion last May, acquiring five wind

farms with enough capacity to supply 80,000 households a year, and through its subsidiary EOS

Wind Deutschland purchasing three further wind farms from Denmark’s Scan Energy. Such levels

of investment make sense, says Berger, who remarks, “Wind and other forms of renewable energy

benefit from stable levelised costs of electricity: you aren’t exposed to volatile commodities markets

as with, for instance, the gas-powered generation.”

Given the high rate of growth in renewable energy generation, Imolauer notes, there is a greater

requirement for increased investment in the ancillary components. In particular, transmission systems

will have to evolve in order to cope with greater loads, making distribution infrastructure another

prime area for increased levels of M&A. The offshore sector has seen evidence of this as recently as

this February, when Japanese firm Mitsubishi Corporation bought a 49% stake in two high-voltage

cable projects BorWin1 and BorWin2 from Netherlands-based TenneT BV. Given the challenging

financing climate, equity sales such as this are a useful way for developers to secure financial support

for ongoing expansion in Germany’s offshore wind space.

Another ancillary area receiving attention from investors is storage. Imolauer explains, “We have

a lot of volatile electricity production in Germany, so the problem of storage must be solved. It’s

no use if you have a lot of wind power and the grid cannot cope because consumption is too low.”

This problem, as well as that of excess demand, could be solved by more advanced power storage

solutions in the future. He notes that on a domestic scale, battery systems are improving as time goes

on. “Presently, we see a decline in battery costs of 13%–15% per year, which could grow stronger

if manufacturers from Asia increase their output.” The price of a battery still currently tips the cost of

solar installations above grid parity. If the price comes down sufficiently, such arrangements would be

ideal for small-scale photovoltaic or wind installations, and could, thinks Imolauer, allow households

to become up to 80% self self-sufficient for energy.

On an industrial scale, energy storage solutions are likely to attract more capital in the future. “Public

utilities are investing heavily in storage solutions,” Imolauer explains, going on to say that of the two

popular methods, gas storage is the most exciting. This form of storage avoids the environmental

issues associated with finding discharge locations for pump storage facilities. With wind-to-gas when

grids are full and wind turbines running, the electricity is used to isolate hydrogen, while CO2 is

obtained from biogas. These inputs are then converted to methane (CH4 ). This methane gas can then,

theoretically, be stored in the country’s gas distribution network and allows electricity production at

peak times, when PV and wind production is down.

Using Germany’s gas network as storage is an exciting possibility, and while developments as visionary

as this may be a long way off, they do give an insight into the ongoing innovation taking place in the

sector. The challenges to reduce costs across all renewable sources, to develop more sophisticated

storage and grid management solutions, and to make up for the energy gap left behind by nuclear

energy, are all likely to stimulate high levels of M&A activity in the years ahead.

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Spotlight: Spain

Spain enjoys a position as one of the world’s leading markets for renewable energy development with nearly 40% of the country’s electrical output coming from renewable energy and over 60% from sources that do not emit CO2. At this level, the country’s renewable energy production already exceeds the EU’s 2020 climate change targets and the solar industry is on track to reach grid parity by as soon as next year.

Certainly, the Spanish renewable energy industry is among the most mature globally and offers

plentiful M&A opportunities simply by virtue of its scale, but big changes afoot in the sector may

cause a re-evaluation by investors, those based both locally and abroad.

Years of state largesse helped to bolster investment in Spanish renewable industries – with solar

and wind power projects experiencing particularly strong growth. “But this era has now come

to an abrupt end,” says Georg Abegg, Partner in the Madrid office of Rödl & Partner.

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“We have a new government, which, as you can imagine, has to confront serious budget

challenges. One of the first steps taken in this regard was to cut feed-in tariffs in the renewable

energy sector,” he explains.

“Projects that already have a tariff subscribed will continue to receive subsidies, but the special

regime for new projects has stopped,” adds Abegg. The decision to not retroactively touch the

tariff regime has helped the government to avoid the backlash its predecessors suffered after

cutting subsidies for existing projects in 2010 – a move that provoked lawsuits with over a dozen

investors seeking arbitration of around €600m against the Spanish government.

The steps taken by the newly inaugurated government, led by Prime Minister Mariano Rajoy and

his Partido Popular, are in line with similar moves taken in Germany and Italy this year, and follow

attempts in the UK to reduce subsidies last year – a move that also resulted in legal challenges.

Surveying the lay of the land in the wake of the subsidy cuts, the renewable energy market in

Spain appears in flux. “Grid parity is possible,” says Abegg, “but the financing picture for energy

development projects is, as of yet, not clear.” He believes this will require two things: “The

government needs to first develop clear regulations for the export of electricity and second,

the economy has to enter some period of recovery.”

This is one of the big problems that producers in the Spanish market face, particularly in the solar

niche. The investment boom of recent years has left Spain with an oversupply of installed capacity

at a time when demand in the country is falling. Constrained demand is not simply a transitory

phenomenon, but a structural feature of the Spanish economy, which is not expected to bounce

back to stronger levels of energy consumption until the economic imbalances unwind over the

coming few years.

Even in the face of such headwinds, the Spanish market is not without solid long-term opportunities,

however. Irradiation levels in the sun-bleached south of the country make photovoltaic projects prime

for competing at grid parity. Taken together with the falling prices for equipment and the country’s

110,000-strong renewables workforce, Spain remains an attractive place for fresh investments.

The announcement by Würth Solar and Gehrlicher Solar to develop Europe’s largest solar plants

in the coming years attest to this. Würth is planning a 287-megawatt project in Murcia at an

estimated cost of €277m, while Gehrlicher is planning a 250-megawatt project in Extremadura,

worth an estimated €250m. The projects, which will be based on the new subsidy-free regime,

will be roughly three times larger than any existing solar plants in Europe and offer strong signs

of confidence in the Spanish market.

Abegg believes these sizeable investments offer hopeful signs for the future, but notes that, in

general, “People are still getting their feet wet in the market at the moment, but waiting until

new regulations for grid access and connectivity are in place before they get in the water.”

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Spotlight: Italy

Italy is one of the world’s premier markets for green energy and a favourite among financial and strategic investors thanks to a history of generous government support under the Conto Energia regulatory framework. Roberto Pera and Svenja Bartels, Partners in Rödl & Partner’s Italian practice, explain, however, that lack of clarity in the long-awaited fifth generation of Italy’s renewable energy legislation has made for a murky regulatory picture in the renewable market.

This has heightened uncertainty for firms looking to break ground on new projects. It is clear from

the Government’s draft legislation that there will be a move to cut feed-in tariffs, but it is not clear

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what final form subsidies and regulations will take under the new register, calling into question

the potential profitability and viability of new projects.

This has given a boost to M&A investing, however. Roberto Pera explains, “The legislative uncertainty

brought the market to a stop for new project developments, but the real M&A market, meaning the

sale and purchase of existing power plants, has become an increasingly attractive investment option.”

The Ministry of Economic Development plans to implement the new decree in the solar industry once

its €6bn allocation of feed-in tariffs for the niche is reached. The exact date remains indeterminate,

but will come due before the end of this year. “And this,“ says Svenja Bartels, “is causing investors to

look seriously at projects that are operating at grid parity or close to it.”

According to the draft legislation, slashes to the solar tariff regime are expected to be steeper than

for classes of other renewable energies. While this has left some in the space feeling burned,

companies facing reduced government incentives will be forced to become more efficient and

competitive against traditional energy providers.

The cutbacks are projected to be in the range of 35% on average for solar, but just 10–15%

elsewhere. Indeed, many in the industry have expected more generous support. Other renewable

energy sources facing less severe cuts in the wind, biomass, biogas, geothermal and hydroelectric

spaces will become subject to the new framework starting in January 2013. But even under the

new framework, these assets could become more attractive to investors as PV loses its lustre.

“Photovoltaics have long been the focus of investors, having received significant government

support, but there have also been smaller booms elsewhere such as wind and biomass, which

have been very interesting recently,” says Bartels. Indeed, she adds that, “Italy’s biomass subsector

is one of the most competitive in Europe right now from a feed-in tariff perspective, although

it has been targeted for cuts.”

When there is greater legislative clarity, strategic and financial renewable energy investors may be

more eager to deploy capital toward new renewable energy project developments. As Bartels notes,

however, “Investors will be looking for a clear view on what is still feasible.”

On the M&A side, there has been less buy-side activity among strategic investors in recent times says

Pera. However, big utility players with healthy balance sheets may give a boost to transaction flows.

Enel has a war chest of more than €6bn which it plans to spend over the coming years, both at home

but also in emerging markets.

Thriving investment activity from financial investors has been one of the biggest drivers of M&A

in the renewable energy space recently. “US and German investment funds as well as private investors

have been particularly active buyers,” says Pera.

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Spotlight: Growth markets

Given the rising demand from countries like China and India, and growing support from government bodies to develop renewable energy sources in these areas, optimism towards emerging markets for the future development of the renewable energy industry comes as little surprise. It is worth too revisiting the USA, where ample opportunity for growth ensures bright prospects for future deal-making activity.

USACompared to its European peers, the USA is still somewhat of an emerging market when it comes

to renewable energy. The country sources the large majority of its energy from petroleum and

coal, and just a slim 9% from renewable sources. Looking specifically at electricity shows a slightly

higher 13% from renewable sources – an encouraging sign, given the goal put forth by President

Obama just four years ago to source 10% of electricity from renewable sources by 2012.

Still, the country’s renewable energy sector is dynamic, and the regulatory environment remains

largely uncertain, making it difficult for investors to confidently back new projects. The solar

industry is a case in point: the Treasury Department‘s cash grant programme, which provides a

30% cash grant in lieu of the 30% investment tax credit, has been a successful stimulus for solar

development, but its expiration at the end of 2011 leaves investors’ next moves largely uncertain.

The presidential election season through November 2012 adds another layer of uncertainty, and

casts doubt on whether the cash grant programme will be extended before then. At the moment

there is no apparent political appetite for a federal feed-in tariff, or direct investment by federal

and state governments, despite indications that such subsidies would be the most effective way

to increase the share of renewable energy in the country’s energy mix. Generous federal tax

credits remain in place through 31 December 2013; however it remains to be seen whether

these will be as powerful a stimulus at the Treasury Department’s cash grant programme.

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At the same time, investors encounter frequent alterations to tax credit rules, making it difficult

to map out long-term strategies or establish accurate financial forecasts. There are also variations

across state lines when it comes to what constitutes renewable energy, minimum requirements

for eligibility, implementation and timing, and states have also set different targets for renewable

energy use over the next decade. For instance, Arizona is aiming for 15% of electricity sales to

come from renewable sources by 2025, but these same figures are 25% by 2025 in neighbouring

Nevada and an even more ambitious 29% by 2015 in New York.

Ullrich Kämmerer, Partner at Rödl & Partner‘s US office determines: “Different than in Germany,

and besides the aforementioned tax credits, the most important ‘incentives’ for renewable energy

development are the Renewable Portfolio Standards. Currently, 36 states have implemented

such standards which will require utility companies to supply a certain minimum share of their

electricity from designated renewable resources. Generally, these resources include wind, solar,

geothermal, biomass, and some types of hydroelectricity, but may include other resources such

as landfill gas, municipal solid waste and tidal energy.”

In addition to regulatory hurdles, there are more general concerns about the speed of the

country’s economic recovery and the long-term effects of housing and banking crises. But

recent deal flow suggests there is nevertheless an appetite for new investment. One of the

most high-profile deals of the past year came from Berkshire Hathaway’s MidAmerican Energy

Holdings, which invested US$2bn into the Topaz Solar Farm, a 550-megawatt photovoltaic

project in southern California. And in the wind industry, Canada-based Alonquin Power & Utilities

Corp. purchased a 51% stake in four wind farm projects in Illinois from Gamesa Corporacion

Tecnologica for a consideration of €675m – a 480MW project that highlights

the benefits of deploying foreign expertise in the US market.

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These are just some of the many examples of M&A deals taking place despite difficult market

conditions. There continues to be an active push toward renewable energy development in

the country, thanks to government support and a lively public discourse on the environmental

impact of fossil fuels. Meanwhile, traditional oil companies continue to diversify their portfolios

to include wind, solar and biomass, increasing M&A activity in the process.

According to Kämmerer, the largest hurdle for future growth of the US renewable energy

market, including M&A transactions, is the aftermath of the financial crisis. The wind and solar

parks, which are at the end of the supply chain, are still facing financing difficulties, banks are

still reluctant to grant loans, and foreign equity investors are still seeking more conservative

investment alternatives outside the US.

These challenges notwithstanding, however, the domestic US tax regime, renewable energy

tax credits and provisions of the US-German tax treaty making it possible for German equity

investors to generate tax-free income from both countries, may help to foster a turnaround

within the next 24 months.

South Africa South Africa has enormous potential for renewable energy development – its climate should

make it easy to harness solar energy and developing the necessary infrastructure would greatly

improve economic growth prospects. South Africa is perhaps the most advanced country for

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renewable energy development in a region that is seeing ever more countries take steps to foster

growth in the sector. For instance, a small number of countries have had feed-in tariffs in place

for some time, like Algeria and Tunisia, and even Nigeria, which is predominantly an oil and gas

country is at work on a renewable energy plan.

“Even in South Africa, however, the market is not yet ripe for developing small to medium-sized

enterprises (SMEs),” says Ulrike Brückner from Rödl & Partner’s Africa office with a specialty in

South Africa. “Capitalising on the tremendous opportunity that exists there can be challenging,

as transparency issues cloud the M&A process. All of the decisions to invest in Africa have to

be very comprehensive and well thought through. Even renewable energy programmes with

guaranteed incentives do not necessarily replace the preconditions you need to have when

entering the African market.”

Looking at Africa as a whole, the renewable energy sector still has a long way to go. The concept

of renewable energy has not evolved in Africa in the same way it has evolved elsewhere. Indeed,

while many North American, Western European and Asia-Pacific countries have accepted

renewable energy as a critical part of gaining energy independence and minimising environmental

damage, in African countries these issues are not part of the broader public dialogue. There is a

different perception of renewable energy in the African market. Renewable energy is not one of

peoples’ central concerns. They are happy when they get energy – but the public perception is

not yet that it’s better to get energy from renewable sources.

European players have actively expanded into Africa through M&A although deal structures are

not always straightforward strategic acquisitions. An example from 2011 is Solarpack, the Spanish

solar power plant developer which started operating in South Africa through a joint venture with

local partner Kabi Energy, valued at approximately €135m.

Investments like this show that strategic and financial investors are tapping into Africa despite risks,

and that local partners are there on the ground. “Ultimately,” says Brückner, “the development

of renewable energy is necessary to build out Africa’s economic growth story: If you don’t bring

renewable energy to Africa, they can’t justify the growth they have now. They need it there and

there is definitely great potential.”

IndiaFinally, one of the most important emerging markets for renewable energy development is India

– although as Jan Eberhardt from Rödl & Partner’s Mumbai office explains, the term 'emerging

markets' does not necessarily fit. Ever-growing demand has made the development of renewable

energy a necessity for India, rather than just an alternative. Thus the Government is actively

encouraging the establishment of new sources, like biomass and solar, through tax benefits

for companies going green.

“With the wind energy market established and running viably, currently at over 16 GW installed

capacity, the Indian Government concentrates on promoting solar power through the ‘National

Solar Mission’, including PV as well as solar thermal projects,” says Eberhardt.

The wind category has already undergone substantial consolidation and continues to see fresh

interest from investors, particularly from the US. Indeed, take wind as a starting point. With a

total installed capacity close to 15 GW, and growing by about 300 MW each year, India is the

fifth largest wind market worldwide in terms of installed capacity. So it comes as little surprise

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that conglomerates like GE Energy and other high-profile investors – ranging from international

investment bank Goldman Sachs to the International Finance Corporation (IFC) – have all made

their mark there. As recently as early 2011, Goldman Sachs acquired a majority interest in ReNew

Wind Power for a consideration of US$202m, in a deal aimed at strengthening ReNew’s financial

and operational performance; separately, the IFC acquired a 10% stake in NSL Renewable Power

Private Limited, the India-based company that develops, owns and operates wind and biomass-

powered power plants from India-based conglomerate NSL Group for US$20m.

These are only two of many examples that showcase India’s importance to the international

investment community. M&A in the country is likely to accelerate as the year progresses as investors

in developed markets seek growth opportunities in specific subsectors like wind. At the same time,

‘younger’ subsectors like solar are undergoing domestic consolidation; 2012 so far has seen the

acquisition of solar project developer EverSun Energy by Tecpro Systems, a diversified material

handling system company backed by private equity firm Avigo Capital Partners.

Deals like these highlight India’s aggressive expansion efforts for solar. “To increase the current

solar capacity from less than 100 MW to 20,000 MW in 2020 seems rather ambitious but it

shows that India is resolved to move ahead,” says Eberhardt.

While acknowledging India’s ample growth prospects, Eberhardt stresses that investors should

approach new opportunities pragmatically: “One issue for the builders of solar plants is the three-

year lock-in period for the shares in any SPV company installed under the Solar Mission program.

In consequence, any investment architecture has to be planned carefully.”

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Spotlight: Grid parity

Respondents to this year’s survey predict that grid parity in most European countries will be achieved between 2015 and 2016 for both solar photovoltaic and wind. These predictions are fairly optimistic but entirely realistic: despite volatility in the eurozone and uncertainty surrounding feed-in tariffs in many Southern European countries, lower input costs have made grid parity realistically achievable for many renewable energy producers, especially in the wind and solar segments. These currently have one of the lowest levelised costs of energy generation in the renewable space with a very high predictability of their total costs of ownership.

Now that renewable energy is able to compete with more traditional sources of power, says Ralf Ott,

Renewable Energy Consultant in Rödl & Partner’s Nuremberg office, the industry is at an important

turning point and the pressure is on both businesses and governments to develop solutions for efficiently

integrating renewable sources into the overall energy mix.

Prices for PV modules have been falling due to a glut in supply and falling demand from the largest

market (Europe), which has cut profits at some of the major manufacturers in the US, Asia and Europe,

igniting consolidation and restructuring.

The effects are being felt all the way down the supply chain. As Ott points out, price reductions for PV

systems such as cells and modules led to a decline in terms of levelised cost of electricity (LCOE) at a

disruptive pace. ”In Germany, we always said we wanted to reach grid parity by 2020, for Italy or Greece

it was around 2014; however, due to greater than expected cost reductions for installing solar panels,

these targets will be reached ahead of time.“

Broadly speaking, this is a positive development: cost reductions in solar power generation have justified

the economic case for solar and helped to stimulate the installation of green energy systems. However,

in order to understand what steps need to be taken to continue progress, it is important to understand

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what Ott calls the ”dynamic effects” of such price changes at the energy spot market and new costs

for grid reinforcements and extensions. However, these costs have to be taken into consideration when

talking about LCOE and dynamic grid parity.

These again vary depending on the region in question and the segment of renewable energy.

In Germany, the price of electricity at peak times has fallen due to a high concentration of PV energy

production, known as the Merit Order Effect. Falling prices put pressure on renewable energy

producers, who also have the difficult task of making projections about future revenue in the absence

of a feed-in tariff.

Furthermore, whilst prices are falling due to overcapacity, the simultaneous removal of feed-in tariffs by

the Spanish Government has put a number of producers in a more difficult position. Similar problems

are being faced in Italy and Greece, where the economic climate has put downward pressure on

demand too.

Despite obstacles, investment continues as companies with advanced technology look beyond their

borders to monetise their intellectual property. Two German companies, Würth Solar and Gehrlicher

Solar, recently made separate announcements to build Europe’s largest solar power plants in Spain,

both of which are expected to operate at grid parity. This could demonstrate the competitiveness of

solar projects on a large scale, and is occurring in spite of the removal of government support in Spain.

In Europe, further advancement is now needed in order to create efficient energy systems that cope

with the fluctuation of renewable energy generation. For residential solar power generation, which has

been successful in Europe, the next step will be to develop local storage solutions so that the energy

from residential generation systems can be used throughout the day. Producers of inverters like SMA are

already developing suitable products in order to manage solar power generation and household demand.

On an industrial scale, the development of storage solutions is already gaining momentum in the US,

Germany and Japan. “Firms such as SolarFuel,” mentions Ott, “are designing electrolysers and machinery

to produce a transportable fuel such as hydrogen or methane – a technology commonly known as

power-to-gas. As these systems continue to evolve, the development of smart grid technology will help

to synchronise energy generation and consumption, which is one of the biggest obstacles to overcome

in order to reach grid parity, achieve cost savings and improve overall efficiency.”

For wind and solar energy, costs now are at a level such that grid parity is achievable, so that the key

concern will be raising sufficient funds to finance new projects, particularly as realising some of the

best opportunities will require cross-border acquisitions or joint ventures, especially in emerging markets.

Of course, the term grid parity has to be defined for each country and market segment.

In Europe, the US, China, and even in emerging countries, where renewable energy technology

will be able to produce energy at grid parity, greater efficiency will be achieved when the underlying

infrastructure to harness renewable energy sources receives the attention it needs. Businesses have

to develop the necessary technology to build smart grids and smart homes that will achieve this, but

governments also need to minimise bureaucracy and design a regulatory framework to help move

energy distribution and consumption to the next level. After overcoming these barriers and correctly

calculating LCOE, grid parity can be achievable and renewable energies will be competitive across the

globe. The design of electricity markets has to be revised in order to cope with these new developments.

New ideas for sustainable success

As one of the leading professional services fi rms in the fi eld of renewables, Rödl & Partner has decades of experience in advising the full spectrum of interested parties – from utilities in Germany to project developers in India, engineering groups in Brazil and investment funds in USA.

Our thorough and practical knowledge of the renewables markets ensures that our clients get the best return from their opportunities and have the right answers to proceed – anytime and anywhere in the world.

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Methodology

In the first quarter of 2012, Remark, the research and publications division of The Mergermarket

Group, interviewed 100 senior M&A practitioners – including the corporate, private equity,

venture capital and investment banking communities – involved in the renewable energy sector.

Respondents’ regional backgrounds include Africa, Asia-Pacific, Central & South America, Europe

and North America. Respondents were asked to share their views on the most pressing issues facing

renewable energy investors in 2012, including regulatory obstacles, financing availability and broader

economic conditions. All feedback is anonymous and results are presented in aggregate.

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Survey findings

Respondents are largely optimistic for renewable energy M&A in 2012, with 87% expecting

increased activity throughout the year. This marks a positive change in sentiment against 2011,

when 72% of respondents expected increased activity in M&A through the year.

Respondents’ optimism is reflected in their commentary, which highlights the renewable energy

sector’s steady growth and sophistication over time. A private equity respondent based in India

says this has improved investor sentiment: “Well-defined and clear distribution systems and sales

channels have been established for trading renewable energy, technology, and services and this

has encouraged investor confidence.”

Traditional energy companies’ desire to access this growth should drive M&A through the next year,

says another private equity respondent: “Companies that were focused on fossil fuels or on one

particular renewable energy source for a long time have started to diversify their activities, and they

are fulfilling their interest in renewable energy through M&A.”

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What do you expect to happen to the overall level of global M&A activity in the renewable energy sector over the next 12 months?

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87%of respondents expectincreased M&A activity

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As far as specific geographies are concerned, 46% of respondents expect the

highest levels of M&A to come from the Asia-Pacific region, followed by Europe

and North America. It is important to note that many respondents expect M&A

to transverse regional boundaries as cross-border deal activity picks up between

emerging and developed markets.

Just as the industry’s major players seek growth in emerging markets like India and

China, emerging market players are actively seeking opportunities in developed

countries. A corporate respondent based in India states: “Renewable energy

technology in Asian and African countries has not yet evolved, so these countries

are eagerly looking for support through partnerships with European partners,

resulting in increased M&A.”

Low valuations in Europe will give abundant opportunities to these types of

acquirers, says an Italian corporate respondent: “Big companies with strong

cash reserves from Asia and America are eyeing targets in Europe,

which are struggling and offer low valuations. M&A would give these

companies direct access to the biggest renewable energy market and

access to the best technology.” North America

Most significant

Very significant

Significant

0 20 40 60 80 100

Middle East

Africa

Central & South America

North America

Europe

Asia-Pacific 46%

23%

26%

3% 19%

5% 18%

5%

2%

20%

17% 22%

31% 16%

27% 18%

Which region(s) do you expect to witness significant M&A activity in the renewable energy sector over the next 12 months?

Compared to traditional sources of energy such as coal, the main energy source in India, solar is currently more costly in absolute terms. In order to achieve the anticipated grid parity by 2022 and parity with coal-based thermal power by 2030, enormous technology deployment, development and transfer will be required. This will translate

into significant organic and inorganic growth in the industry.

Jan Eberhardt, Rödl & Partner Mumbai

Europe

87 %Asia-Pacific

is seen as the mostsignificant region fordeal activity in 2012

Percentage of respondents

22 www.roedl.com

Survey findings

The growing importance of markets like Asia, Latin America and Africa is clearly recognised by

respondents as their attitude has shifted since the last edition of this report. An overwhelming 91%

of respondents view emerging markets as very important to the renewable energy sector, up from

67% who said the same in 2011.

For many respondents, the appeal of emerging markets comes down to demand. One

respondent describes emerging markets like China as “the epicentre of energy demand” while

another goes into more detail, saying: “Significant energy demand means greater guarantee for

the investments as the energy produced will be readily consumed, thereby keeping a continuous

cash flow and reducing the cost of storage.“

Emerging markets are very important

Uncertain

Emerging markets are not very important

91%

9%

67%

22%

11%

2012 2011

In your view, how important are emerging markets to M&A activity in the renewable energy sector?

Brazil remains at the moment one of the most thriving growth markets. The renewable energy sector is the driving force for economic development, particularly in the currently lesser developed North and Northeast of the country. While water and wind energy have played a decisive role so far, solar energy is catching up and receiving greater

importance. Economic development programmes issued by the Brazilian government for these newcomer regions promise lucrative investments in the sector.

Dirk Beuth, Rödl & Partner São Paulo

Respondents reveal a

heightenedinterest

in emerging markets

Respondents reveal a

heightenedinterest

in emergingmarkets

23www.roedl.com

Most significant

Very significant

Significant

When it comes to specific industry subsectors, respondents expect M&A to be highest in

more mature categories like wind and solar. Wind power and PV are expected to see the most

significant levels of M&A over the next 12 months by 34% and 27% of respondents, respectively,

followed by solarthermal and biomass.

A corporate respondent based in Germany explains why wind and PV rank so highly: “Wind and

solar technology have undergone tremendous advancements. Now, both the costs of installation

and operation have reduced significantly with prices for solar panels and turbines coming down

by more than 15%. The wind and solar subsectors are profitable now, so they attract the

majority of new investments.”

Biomass is an interesting area to explore. Even though just 13% of respondents selected

biomass as the most significant subsector, a substantial 51% of overall respondents say

it will see very significant or significant M&A this year. A respondent from a Swedish

private equity firm says: “Governments are implementing plans for forest management and

conservation of both biosphere and energy consumption at the same time. The effective

management of forest areas and agricultural waste has increased interest in biomass.

The European region is concentrating on solar and biomass to diversify their energy supply.”

Hydropower ranks lower on the list, reflecting concerns about reliability and environmental

risks: “Compared to wind, biomass and solarthermal, hydropower requires significant capital

investments and faces considerable obstacles in getting environmental clearance as it greatly

affects the habitat of wildlife. Also hydropower plants go down in operational capacity as

the water storage depletes due to less rainfall.”

0 10 20 30 40 50 60 70 80

Geothermal

Hydropower

Biomass

Solarthermal

Photovoltaics

Wind power 34%

27%

20%

13% 17%

6% 17% 17%

3%

34%

27% 12%

16% 14%

23% 19%

Which subsector(s) of the renewable energy sector do you expect to witness significant M&A activity over the next 12 months?

Percentage of respondents

Respondents reveal a

heightenedinterest

in emerging markets

Main subsectorfor M&A activity:

24 www.roedl.com

Survey findings

The clear majority (96%) predicts that renewable energy companies will be the most active

acquirers in the next 12 months, while 73% expect private equity funds to be most active.

This mirrors other survey findings, like respondents’ predictions that cash-rich corporates will

be a significant force behind M&A, or that private equity firms looking to exit their investments

are more likely to seek strategic acquirers than secondary private equity buyers or IPO exits.

Cash-rich acquirers are a popular talking point, but there are other investment groups coming onto

the scene that warrant closer analysis. Pension funds and sovereign wealth funds, selected by 29%

and 20% respectively, are part of a broader trend of competition among non-traditional investor

groups, says a private equity investor based in South Africa: “International groups, finance houses,

manufacturers and evolving finance institutions like pension funds are interested in the renewable

energy sector and want to cash in on the wide benefits in this sector. They are competing with each

other to buy assets and project rights.”

0 20 40 60 80 100

Sovereign wealth funds

Pension funds

Financial institutions

Traditional energy companies

Private equity funds

Renewable energycompanies themselves 96%

73%

52%

45%

29%

20%

Who do you expect to be principal acquirers within the renewable energy sector over the next 12 months?

It is a clear trend for 2012 that renewable energy companies will continue to remain a dominant factor in the M&A market. This is partly due to the consolidation of this market, where smaller players will be absorbed by larger competitors. Furthermore, PE funds and pension funds are aware that renewable energy projects and parks may provide quite high yields on their investment

compared to traditional investments in other sectors.

Oliver Schmitt, Rödl & Partner Munich

Percentage of respondents

of the respondents

predicts increased M&A activity

96%expect renewable

energy companies to be the principal acquirers

25www.roedl.com

Deal structures in the renewable energy sector are most likely to take the form of classical share deals,

according to 42% of respondents, or project acquisition via special purpose acquisition vehicles

(SPVs), according to 47% of respondents, over the next five years. Project acquisitions via permit

acquisitions are not widely expected to be a common deal structure during this time. Tellingly,

the percentage of respondents citing SPVs as a popular deal structure has increased steadily

since 2010.

The popularity of SPVs may reflect their flexibility. One respondent says: “Utility companies

are making a number of project acquisitions through SPV, which allows them to develop

projects as per their need.” Another states: “SPV allows the company to go ahead with the

various project development activities by itself.” A French respondent states: “There are two

main reasons that SPVs will be favoured. One is that sellers that do not wish to sell themselves

completely are able to sell only a stake. Secondly, SPVs ensure financial credibility for buyers.”

Once again there are important regional variations in respondents’ feedback. In emerging markets,

says one corporate respondent from India, SPVs help to mediate transparency concerns: “We have

made significant project acquisitions through SPVs. It erodes the financial risk and greatly helps in

developing projects in countries where the political stability is not there, like Africa.”

Classical share deal – acquiring (a stake in) a renewable energy - focused corporation

Project acquisition by acquisition of a special purpose vehicle (SPV)

Project acquisition by acquisition of permits

A combination of any of the three

0

10

20

30

40

50

60

70

80

90

100

201020112012

8%3%

20%

5%16%

18%

66%

40%

35%

47%

42%

What do you expect will be the dominant M&A deal structure in the renewable energy sector over the next five years?

Perc

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s

of the respondents

predicts increased M&A activity

SPVs aregrowing

in popularity

26 www.roedl.com

Survey findings

Very significant

Moderate

Insignificant

Government support is by far the most important external driver of M&A, selected by 76% of

respondents. A corporate respondent based in Singapore says that state involvement alleviates

investors’ concerns and improves confidence: “Government support ensures a smooth clearance

of all roadblocks like labour and environmental regulations and easy access to finance.”

Close to half of respondents (47%) say cash-rich corporate buyers will be a very significant force

behind M&A deals in 2012, and many in this group point out that corporate purchasing power

will target distressed opportunities throughout the year.

Regional deal flow will highlight the importance of all of these factors together, says the vice president

of a renewable energy company in the US: “Competition across regions to capture market share and

establish their leadership in the highly growing and profitable renewable energy sector will be strong.

Steps have been taken by some governments to provide funding, like through the creation of the Green

Investment Bank in the UK. Governments are doing more to promote low carbon energy technologies

and adoption of feed-in tariffs, carbon reduction targets, financial incentives for investment and energy

production will boost the investments in the renewable energy sector.”

0

10

20

30

40

50

60

70

80

90

100

DistressClimate change concerns

High commodity prices

Cash-rich corporates

Government support

<1%

23%

52%

47%

18% 21%

57%

22%

47%

35%

18%

50%

32%

76%

<1%

What do you expect to be the principal external drivers of M&A activity over the next 12 months?

Energy is the key to economic growth on the African continent. Particularly in African economies, governments are the main driving force that address the growing energy demands and help develop the power sector. The recent introduction of supportive programmes by several African governments will promote the

establishment of a private sector in the respective markets. The enormous size of many of the projects will lead to an increase in transactions in the sector.

Ulrike Brückner, Rödl & Partner Berlin/Johannesburg

Perc

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s

of the respondents predicts

increased M&A activity

Governmentsupport

as the most importantexternal driver of M&A

27www.roedl.com

Respondents are most likely to cite the appetite for technology and know-how as the principal

internal driver of renewable energy M&A, followed by the appetite for market share.

Low corporate valuations and favourable legislation (either new or proposed) in certain

countries are also widely expected to fuel M&A this year, according to 48% and 45% of

respondents, respectively. These drivers are expected to be even more important than the

desire for economies of scale and non-core asset disposals in the next 12 months.

Some of the internal drivers outlined here will be particularly prominent in emerging markets.

A desire for technology and know-how, for instance, is behind many of the M&A deals in

emerging markets, says the CFO of a clean energy company based in China: “More than the

developed markets, emerging markets are investing in renewable energy to ensure their energy

security. Many emerging countries – apart from China, India, Brazil and South Korea – lack technology

and know-how to develop renewable facilities, and they are attractive targets for M&A deals.”

The recent years have brought numerous projects into the Baltics – not all will be realised and many will require foreign capital. And this is precisely how interesting opportunities emerge for investors. Alongside the earnings quality, the strategic importance of these projects will play a decisive role: the market share that is to be gained, the local know-how and the still crisis-

influenced discounted acquisition prices are just as significant.

Jens Pastille, Rödl & Partner Baltics

0 10 20 30 40 50 60 70 80

Other

To dispose of non-core assets

To achieve economies of scale

To benefit from new/proposedlegislation in specific countries/regions

To benefit from lowcorporate valuations

To acquire a competitor/gain market share

To acquire know-how/technology 72%

60%

48%

45%

41%

23%

1%

What do you expect to be the principal internal driver(s) of M&A activity in the renewable energy sector over the next 12 months?

Percentage of respondents

of the respondents predicts

increased M&A activity

72% state that

know-how & technology

will fuel M&A this year

28 www.roedl.com

Survey findings

Not surprisingly, two of the most important obstacles to renewable energy investors are the financing

environment and the regulatory environment, both of which have been broadly uncertain in recent

months. Another challenge to M&A for 40% of respondents is bureaucratic inefficiency (red tape) –

a challenge that seems to be magnified in emerging markets. One respondent with experience in the

Asia-Pacific region says: “Getting environmental, labour and safety clearance from the authorities

takes significant time which subsequently increases the overall investment. Corruption can also be

a major roadblock.”

A respondent says of financing availability: “The fragile financing environment is still the biggest

obstacle for the renewable energy sector. If the debt crises continue then the Government will

not be able to inject any more capital and will be forced to cut short the incentives to focus on

more important infrastructural projects.”

Many of these obstacles are deeply intertwined – the Spanish Government’s decision to curb

subsidies in response to its debt crisis early this year, for example. One respondent says: “Debt

crises in Europe have forced the Government to scale down its renewable energy programmes

and lead to a withdrawal of incentives.”

A separate obstacle altogether will be nuclear energy, which one respondent describes as “a

clear competitor for renewable energy because of its low cost of energy production and reliability.”

Another goes into more detail, noting that many countries have a longstanding relationship with

nuclear: “Nuclear energy has become a very efficient energy source for countries like France, Japan

and Australia. These countries and many others have made significant investments in nuclear energy

and infrastructure, which makes it more difficult to back away.”

0 10 20 30 40 50

Other

Uncertainty or lack of legislation

Decrease or cessation of incentives

Guarantee of protection of investment

Political situation in target countries(eg. choice for nuclear power)

Bureaucratic inefficiencies (red tape)

Uncertainty and duration ofattaining necessary operational

permits, licenses etc.

Access to financing 49%

41%

40%

37%

35%

35%

21%

1%

What do you consider to be the most significant obstacle(s) to M&A activity in the renewable energy sector?

Percentage of respondents

For 76%

Government support

the principal external driver of M&A

Access tofinancing

remains a top concern for nearly half of respondents

The continued strained situation in the financial markets and the consequent retreat of select banks from supporting renewable energy projects has had a negative impact in securing appropriate external financing (conditions). Stable feed-in tariffs for the duration of the financing period are therefore in any case

indispensable to the financing banks.

Jürgen Siegl, Rödl & Partner Nuremberg

29www.roedl.com

Yes

No

Respondents are more positive this year than they have been in the past.

The large majority of respondents (84%) believe governments are doing

enough to promote renewable energy investments, compared to just 49%

of those interviewed over 2010 and 2011.

Respondents of various regional backgrounds – Latin America, Southeast Asia,

North America, Eastern Europe, to name a few – all appear to be equally confident

that governments are gradually coming to understand that their dependence on fossil

fuel is delicate at best. A corporate respondent from Bulgaria says: “Central & Eastern

European countries are heavily dependent on oil supplies from Russia and some Middle

Eastern countries and always live in fear that any negative tension with these countries

could possibly choke their energy supply.”

This broader trend is a big factor in respondents’ outlook for M&A. A corporate respondent based

in Latin America says: “Every country that wants to be well-prepared for the next decade needs to

have an important part of their energy needs coming from renewable resources. A clear political

vision from the government, and their decreasing support to conventional energy to focus on

renewable energy, will increase M&A activity.”

16%

84%

49%51%

Overall, do you believe that national governments are doing enough to promote investment in the renewable energy sector?

For 76%

Respondents are more optimistic about government

support

Singapore wants to be a global hub where clean energy solutions are developed, tested, and exported overseas. The main areas of focus are solar, fuel cells, bio-fuels and energy efficiency solutions. Under the Clean Energy Programme various government agencies have joined forces to develop the industry. Singapore

will continue to make significant investments in this sector, which is expected to contribute SGD1.7bn to Singapore’s GDP by 2015.

Paul Weingarten, Rödl & Partner Singapore

2012 2010/2011

30 www.roedl.com

Survey findings

For 76%

Government support the principal external driver

of M&A

Directinvestment

There is a spectrum of different measures governments can take to encourage

renewable energy development. Direct investment and tax incentives are

considered the two most effective measures, followed closely by feed-in tariffs.

Capital grants rank lowest in terms of effectiveness. However, even these are

considered moderately effective by more than half of those polled. A corporate

respondent based in Germany says: “Capital grants are helpful only for the larger

firms and do not offer much to the smaller companies.”

Looking at specific countries like Germany and Denmark, feed-in tariffs are clearly

celebrated by many investors. One respondent touts the benefits in Germany: “The

best example of the importance of feed-in tariffs is in Germany. Direct investment from the

Government always helps as it puts away the legal and environmental issues with ease.”

Another respondent, a US-based private equity investor, states: “Feed-in tariffs have grown

the renewable energy sector exponentially. These feed-in tariffs offer some guarantee to

projects and a clear view of reasonable profit.”

For 76%

Taxincentives

Very effective

Moderately effective

Not effective

How effective are the following government policies in driving renewable energy sector investment?

0

10

20

30

40

50

60

70

80

90

100

Capital grantsFeed-in tariffsTax incentivesDirect investment

38% 38%

60%

13%

52%

35%

41%

57%61%

1% 2% 2%

Perc

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Feed-in tariffsFeed-intariffs

31www.roedl.com

of the respondents predicts increased M&A activity<25%

Crude pricesto increase by

over the course ofthe next 12 months

Over the next 12 months, more than half of respondents (56%) predict that crude prices will

increase by as much as 25% and slightly less than one-third believe it will remain stable through

the year. This marks a notable change against last year when one-fifth of respondents expected oil

prices to rise by more than 25%; that year, 47% of respondents expected a less than 25% increase.

Regardless of whether crude prices rise or fall, there are many respondents who believe

governments are finally realising the importance of developing renewable energy sources

as their traditional energy sources prove risky and expensive in the long-term. One private

equity respondent from India says: “I don‘t see any reason for the crude oil prices to

come down, but I see a number of reasons for it to go up steeply. First, oil demands are

increasing considerably; and second, the ongoing tensions in the Middle East.”

Indeed, concerns about energy independence have been exacerbated by unrest in the Middle

East and North Africa, says one respondent: “Not all countries have their own oil reserves and

they are very much dependent on oil-rich countries for their energy needs. Many times, countries

without strong ties to the political situations in oil-rich countries are made to suffer through no

fault of their own due to their dependence on these countries. Governments want to avoid this

unnecessary energy insecurity by developing their own renewable energy resources.”

0

10

20

30

40

50

60

70

80

90

100

201020112012

30%

5% 4%6%

23%

47%

20%

5%

27%

59%

9%

56%

9%

The price of crude as of January 2012 is 15% higher against the same point last year – although after a volatile 2011 prices have stabilised somewhat. What do you expect to happen over the next 12 months?

>25% increase

<25% increase

Remain the same

<25% decrease

>25% decrease

Perc

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32 www.roedl.com

Survey findings

Renewable energy has already been established as the future of energy needs and a downfall in

the interest in renewable energy will happen only if oil prices fall significantly, say below US$50 per

barrel. Comparing these results against those of previous surveys, there is now a higher proportion

of uncertain respondents. Compared to just 5% in 2010 and 13% in 2011, this year 40% of

respondents say it is too difficult to predict how low oil prices would need to dip in order to detract

from the appeal of renewable energies.

At the same time, there is another important shift in respondents’ feedback this year: the percentage

of respondents stating that oil prices are not an important factor in determining interest in renewable

sources has increased more than two-fold since last year. This reflects a widely held view that long-

term energy independence outweighs the importance of energy costs at any given moment.

Because of the high commodity prices and further uncertainty on their future prices,

switching to renewable energy is the priority for many countries. Simply put by a

German respondent: “Concern of energy security and environmental issues are

much higher than the concern regarding high commodity prices.”

0

10

20

30

40

50

60

70

80

90

100

201020112012

40%

18%7%

13%

13%

21%

12%

3%

18%

13%

12%

5%

8%

18%

29%

28%

12%

13%

5%

12%

What is the minimum oil price level below which you think interest in renewable energies would fall?

For 76%

Government support

the principal external driver of M&A

Outlook for oil prices is still largely uncertain

<US$50

US$50 - 60

US$61-70

US$71-80

US$81-90

>US$90

Not sure/too difficult to say

Not an important factor

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33www.roedl.com

>5% increase

<5% increase

Remain the same

<5% decrease

>5% decrease

Predictions for electricity prices have not changed considerably since 2010.

This year, about one-third of respondents expect electricity prices to

remain stable whilst remaining respondents are divided between a <5%

increase and a >5% increase. Regardless, most respondents maintain

that electricity prices will not directly impact their business plans or

their existing investments.

0

10

20

30

40

50

60

70

80

90

100

201020112012

36%

25%

36%

8%

26%

40%

25%

32%

32%

34%

2%1% 1%

What do you expect to happen to the price of electricity over the next 12 months?

For 76%

Government support

the principal external driver of M&A

Respondents are divided in their expectations for electricity prices

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34 www.roedl.com

Survey findings

Respondents believe that a guarantee of purchase obligations and clear regulations on transmission

and transport are the two most important ingredients in sustaining grid parity. A US-based private

equity investor believes these two factors allow for revenue visibility and more investor confidence:

“Guaranteed interconnection with the electricity grid solves many problems and ensures regular

revenue with profits.”

Looking at the areas that do not rank as highly on respondents’ lists, respondents have a relatively

neutral stance on power exchange market participation, with 46% describing this as only somewhat

important to grid parity and a noteworthy 13% labelling it as unimportant.

On the topic of transmission and transportation, some respondents state that this is

particularly important among European countries. One Bulgaria-based corporate

respondent says: “Until there is harmonisation among the European players, grid

parity will be difficult to obtain.”

0

10

20

30

40

50

60

70

80

90

100

Power exchange market participation

Grid access with predefined/ concrete capacity

Advancements in energy storage capacity

Clear transmission/transport regulations

Guarantee ofpurchase obligations

36%

39%

6% 9%

41%

38%

12%18%

13%

46%

32%

9%

24%

40%

34%

34%

4%

42%

20%

2% 1%

How important are the following factors in allowing for sustainable project finance at grid parity?

For 76%

Government support

the principal external driver of M&A

Grid parity to depend most on the

guarantee of purchase obligations

Very important

Important

Somewhat important

Somewhat unimportant

Not important at all

Business plans for PV systems in southern Italy are only lucrative if a purchase guarantee for the produced electricity can be secured. The term “grid parity” is thus open to interpretation, as operators of renewable energy plants are still

dependent on preferential treatment, as opposed to operators of conventional energy plants.

Svenja Bartels, Rödl & Partner Padova

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35www.roedl.com

Large-scale PV grid parity appears to be most likely in the near-term for Germany and Italy,

selected by 16% and 10% of respondents, respectively, as potentially seeing grid parity by

2014. Generally speaking, however, 2015 to 2016 will likely be definitive years.

Taken together, more than half of respondents say that Italy, Germany and Spain will all

reach grid parity during this period. One respondent states: “In Italy, Germany and Spain,

generation and transmission technology are well advanced and they have regulated grid

systems for better efficiency.”

Respondents have the most conservative outlook for South Africa, where an aggregate 30%

of respondents predict grid parity between 2017 and 2018. An additional 13% do not expect solar

PV to reach grid parity until after 2018.

While respondents are generally optimistic, there are of course some important obstacles worth

noting. One respondent says: “Eurozone crises spoiled the momentum otherwise grid parity would

have been a reality by 2015.” Another respondent from an alternative energy company focused on

Latin America seconds this in saying: “Ideally, grid parity should have been achieved in solar PV, but

the debacle in the Spanish solar industry and the price war in the PV cells have shaken investor

confidence in European markets.”

It is widely expected by those involved in this segment that 2012 to 2013 will be the period/year of the beginning of grid parity in Spain within the PV subsector. Small, individual house rooftop systems are expected to start cropping up all over the country,

together with larger open-air systems. In general, especially high M&A activities in this (grid parity) area are anticipated.

Christoph Himmelskamp, Rödl & Partner Barcelona

By 2014

By 2015

By 2016

By 2017

By 2018

After 2018

Never

Percentage of respondents

0 20 40 60 80 100

South Africa

Italy

Spain

Germany 16%

5%

10% 39%

23%2% 30% 7% 23% 15%

23% 3% 12% 12% <1%

31% 32% 8% 14% 9%

34% 28% 3% 11% 7% <1%

<1%

In each country, when do you expect large-scale photovoltaic power plants to achieve grid parity?

Percentage of respondents

For 76%

Government support

the principal external driver of M&A

Grid parity by2015 - 2016

36 www.roedl.com

Survey findings

By 2014

By 2015

By 2016

By 2017

By 2018

After 2018

Never

Compared to PV, the outlook for grid parity in the wind subsector is slightly less ambitious. In general,

most respondents expect grid parity to be achieved by 2015 or 2016. Germany and Spain stand

out from the rest, with 39% and 38% of respondents, respectively, expecting these two countries

to achieve grid parity by 2015; approximately one-quarter of respondents say the same for Italy and

Turkey, although in these countries roughly one-third of respondents believe 2016 is more likely.

Another significant theme in respondents’ feedback is the importance of emerging markets.

Countries like China and India are mentioned repeatedly by respondents for their progressive stance

on renewable energy, including an executive from a Japanese energy company who explains: “Wind

power is the fastest growing subsector, and its growth is now being fuelled by developments in Asia.

Asian countries like China and India have developed wind farms that are as efficient as European

wind farms, and highly cost efficient because of the low construction costs.”

European countries have also been progressing toward grid parity.

Despite sovereign debt crises and cuts to government incentives,

respondents are largely optimistic that European countries

in general (and Germany in particular) have made bold

moves toward grid parity, thanks to major advancements in

wind technology and a reduction in turbine costs. “Wind

promises large-scale renewable energy generation and

the development in wind turbines have made them more

efficient, cheaper and practical,” says one respondent.

0 20 40 60 80 100

Turkey

Italy

Spain

Germany 22%

10%

7% 27%

4% 24% 32% 5% 19% 15% 1%

35% 6% 16% 9%

38% 31% 2% 11% 7%

39% 22% 2% 8% 6% 1%

1%

In each country, when do you expect wind to achieve grid parity?

Grid parity is already a reality in Germany: 60% of generated wind capacity is currently directly sold on the market.

Anton Berger, Rödl & Partner Nuremberg

Percentage of respondents

For 76%

Government support

the principal external driver of M&A

Grid parity by2015 - 2016

37www.roedl.com

Increase greatly

Increase

Remain the same

Decrease

Decrease greatly

The outlook for private equity is more optimistic this year than it was last year: compared to 55%

of respondents in the survey of 2011, a substantial 84% of respondents to this year’s survey

expect increased private equity investments in the renewable energy sector.

Respondents’ outlook for solar and PV grid parity in Europe – about three to five years – closely

mirrors the investment horizon for private equity investors. This is reflected in some private equity

respondents’ feedback, which suggests their strategies will take grid parity timeframes into account.

A respondent from a US-based private equity group notes that “wind energy is more matured and

is on track to reach grid parity earlier.” A private equity investor based in Japan says he is monitoring

government developments: “I am expecting the economic reforms to be successful by 2016

in Europe which will bring back the government incentives and grid parity.”

Government incentives are indeed an important factor in determining confidence in the private equity

community. In this respect, a UK-based private equity respondent says: “Increasing incentives from

the government and lower execution timeframes are driving private equity investments in the sector.”

Another example: “Tax incentives like production tax credits are very important as they help in raising

private funds.”

Economic volatility aside, renewable energy has been a safe zone for private equity

investors. One respondent notes that the “recession did not cripple the sector,” while

another states that “the renewable energy sector has given private equity firms much

needed relief with their investments; it’s a sector they can rely on completely to

generate significant returns and strengthen their funds.”

0

10

20

30

40

50

60

70

80

90

100

201020112012

45%

38%

6% 9%

41%

38%

12%10%

3%

30%

61%

6%

14%

66%

18%

34%

4%

42%

20%

1%2%

What do you expect to happen to the level of private equity activity in the renewable energy sector over

the next 12 months?

For 76%

Government support

the principal external driver of M&A

PE activity will gain speed in the next 12

months

Perc

enta

ge o

f re

spon

dent

s

2012 will be a year for further consolidation in the renewable energy sector, in particular in the corresponding Production and Distribution Components sectors, offering

well-positioned private equity players attractive investment opportunities.

Michael Wiehl, Rödl & Partner Nuremberg

38 www.roedl.com

Survey findings

Trade sale

IPO

Secondary buyout

Private equity investors are most likely to exit their investments via trade sales in 2012, according

to 54% of respondents. This marks a gradual change in respondents’ views over the last two

years, as trade sales have become more likely – and IPOs less likely – over this period.

The reasons for this change in attitude can be traced back to major market developments,

particularly in the eurozone and resulting in volatility in the equity markets. “An IPO requires

a multi-step process to achieve liquidity and there are timing uncertainty issues due to exposure

to unpredictable swings in the strength of the equity capital markets,” says a US-based respondent

from a clean technology company. In contrast, selling to strategic acquirers allows for more

certainty: “Trade sales enable liquidity gain through a single-step process and also maximise

value through a competitive auction process.”

Another factor is the rise of secondary financial buyers. One respondent says: “With the entrance of

pension funds and other sovereign wealth funds in the renewable energy sector, secondary buyouts

will pick up.”

0

10

20

30

40

50

60

70

80

90

100

201020112012

41%

38%

21%

9%

41%

38%

12%

31%

32%

37%

38%

8%

54%

34%

4%

42%

20%

How do you expect private equity groups to exit their renewable energy investments over 2012?

For 76%

Government support

the principal external driver of M&A

Trade saleis the primary exit route

for private equity holdings

It is also becoming apparent in 2012 that IPOs represent no viable alternative for the exit of investors. In contrast, exit strategies via trade sales are gaining in importance.

Gerhard Wacker, Rödl & Partner Nuremberg

Perc

enta

ge o

f re

spon

dent

s

39www.roedl.com

For 76%

Government support

the principal external driver of M&A

Outlook forIPO market

largely unclear

Increase greatly

Increase slightly

Remain the same

Decrease slightly

Decrease greatly

For the reasons outlined by respondents above, it comes as little surprise that the outlook for IPOs is

less optimistic than last year. In the next 12 months, just 30% of respondents expect to see an increase

in the volume of IPOs, compared to 47% in total last year. A total of 57% of the respondents think

that the number will remain the same.

It is worth noting, however, that some markets provide a more favourable environment for IPOs

than others. One respondent says: “IPOs gained prominence in Asian markets and have also

seen renewed interest from investors in the US” and another says: “The performance of IPOs has

considerably increased in Asia and energy IPOs have always attracted investors.”

With governments recognising the long-term importance of renewable energy and actively

fostering its development, investors are warming up to the sector and respondents are expecting

the markets to respond positively to new listings. As a Brazilian respondent puts it in the simplest

terms: “Every country has a significant reason to develop their renewable energy. Some want energy

security, to be independent in their energy needs. Others fear poor climate conditions and want to

reduce harmful greenhouse effects, while others want to achieve economic growth by developing

infrastructure and attracting investment. Together, these motives are bringing the renewable energy

sector to new highs and M&A activity will surge to new levels.”

0

10

20

30

40

50

60

70

80

90

100

201020112012

40%

38%

9%

10%9%

41%

38%

12%

9%

46%

41%

3%

13%

57%

30%

34%

4%

42%

20%

3% 1%

What do you expect to happen to the number of IPOs in the renewable energy sector over the next 12 months?

Perc

enta

ge o

f re

spon

dent

s

40 www.roedl.com

41www.roedl.com

Renewable energy-focused corporate

Renewable energy-focused private equity practitioner

Renewable energy-focused financial adviser

0 10 20 30 40 50

Africa

Middle East

Central &South America

Asia-Pacific

North America

Europe 46%

45%

39%

16%

4%

3%

In which region(s) do you operate?

Respondent breakdown

60%

20%

20%

Respondent information

Percentage of respondents

42 www.roedl.com

Respondent information

1 – 2

3 – 4

5 – 6

7

Very successful

Successful

Neutral

Not successful

Not successful at all

71%

22%

6% 1%

How many renewable energy M&A transactions have you been involved in over the past 12 months?

0

20

40

60

80

100

201020112012

20%

67%

13%

29%

1%

16%

65%

18%

48%

23%

How would you rate the outcome of the transaction?

Perc

enta

ge o

f re

spon

dent

s

43www.roedl.com

44 www.roedl. com

Historical data

Volume

Value €m

0

10

20

30

40

50

60

70

80

Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1

2008 2009 2010 2011 2012

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Global renewable energy M&A trendsN

umbe

r of

Dea

ls Deal Value €m

Not disclosed

< €15m

€15m - €100m

€101m - €250m

€251m - €500m

> €500m

M&A volume split by subsector

0

10

20

30

40

50

60

70

80

Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1

5

22

9 11 1316 16

12

25 24 18 17 1928

19 2111

45

145

4

12

5

4

16

11

5

16

10

35

7

8

45

6

21

5

14

3

12

19

9

7

11

7

14

17

9

4

14

17

43

9

14

8

4

8

53

5

15

4

9

11

83

10

27

9

5

11

5

10

11

11

11 1

1

2

2 2

2

2 2

3

2

3

1 2

22

2008 2009 2010 2011 2012

Num

ber

of D

eals

45www.roedl.com

M&A volume split by subsector

0

50

100

150

200

250

2012YTD2011201020092008

22

36

60

20

31 36 38 28

4

31013

21

61

85

13

23

59

69

15

30

51

59

167

72 2

3

Num

ber

of D

eals

Biomass

Hydroelectric

Solar

Wind

Mixed Renewables

Geothermal

Biomass

Hydroelectric

Solar

Wind

Mixed Renewables

Geothermal

M&A value split by subsector

0

5000

10000

15000

20000

25000

30000

35000

2012YTD2011201020092008

8961,9151,381

5,980

6,552

1,747 1,5752,887 6,797

3,903

8,077

5,014

3,0291,77817,411

3,106

4,953

3,904

528

1,227 1,200

98

3423,254

2,806

155

8

395

Valu

e €m

46 www.roedl.com

Historical data

Subsector share of total value

32%

27%

16%

20%

5%

28%

15%

27%

17%

12%1%

Wind

Hydroelectric

Solar

Mixed Renewables

Biomass

Geothermal

Subsector share of total volume

41%

10%

29%

6%

14%1%

34%

11%29%

7%

19%

1%

2011Total Vol = 210

2010Total Vol = 206

2011Total Vol = €25bn

2010Total Vol = €10.7bn

Wind

Hydroelectric

Solar

Mixed Renewables

Biomass

Geothermal

47www.roedl.com

Asia-Pacific

Central & South America

Europe

Middle East & Africa

North America

Asia-Pacific

Central & South America

Europe

Middle East & Africa

North America

M&A deal volume split by region

0

50

100

150

200

250

2012 YTD2011201020092008

16

94

436

26 35

8

27 29

4320

13

142

125

16

124

435

100

3

54

6

Num

ber

of D

eals

0

5000

10000

15000

20000

25000

30000

35000

2012 YTD2011201020092008

398

13,136

2,009

1,500

14,951

1,2321,492

1,4073,797

1,288

2,1932,134

16,455

4,200

5,425

2,473

9,167

6,554

209 524

320

29

M&A deal value split by region

Dea

l Val

ue €

m

48 www.roedl. com

Historical data

Spain

Russia

US

Brazil

Canada

Italy

France

Denmark

China

Other

Germany

Spain

US

Italy

United Kingdom

China

Brazil

France

Canada

Other

Top 10 target countries by value

26%

15%

7%8%

10%

5%

7%

5%

3%

14%18%

17%

11%

6%11%

1%1%

4%

31%

2011 2010

Top 10 target countries by volume

12%

13%

9%

8%

8%5%5%

5%

3%

32%

11%

10%

12%

11%

6%8%6%

4%

5%

29%

2011 2010

49www.roedl.com

Germany

Nuremberg - Head officeAnton Berger

+ 49 (911) 91 93 36 01

anton.berger@roedl.de

MunichOliver Schmitt

+ 49 (89) 92 87 80 311

oliver.schmitt@roedl.de

AfricaUlrike Brückner

+ 49 (30) 20 60 68 60

ulrike.brueckner@roedl.pro

Baltic StatesJens-Christian Pastille

+ 371 (67) 33 81 25

jens.pastille@roedl.pro

BrazilDirk Beuth

+ 55 (11) 50 94 60 63

dirk.beuth@roedl.pro

BulgariaMinko Karatchomakov

+ 359 (8 85) 57 17 65

minko.karatchomakov@roedl.pro

Czech RepublicHans-Ulrich Theobald

+ 420 (2) 36 16 37 30

hans-ulrich.theobald@roedl.cz

FranceIsabelle de Barstch

+ 33 (1) 42 89 12 40

isabelle.debarstch@roedl.pro

GreeceAlexandra Giering

+ 49 (911) 91 93 30 08

alexandra.giering@roedl.de

HungaryStefan Sieferer

+ 36 (1) 81 49 880

stefan.sieferer@roedl.hu

IndiaJan Eberhardt

+ 91 (22) 42 33 18 18

jan.eberhardt@roedl.com

Italy – MilanStefan Brandes

+ 39 (02) 63 28 841

stefan.brandes@roedl.it

Italy – PadovaSvenja Bartels

+ 39 (0 49) 80 46 911

svenja.bartels@roedl.it

Italy – RomeRoberto Pera

+ 39 (06) 96 70 12 70

roberto.pera@roedl.it

PolandAneta Majchrowicz-Baczyk

+ 48 (22) 69 62 800

aneta.baczyk@roedl.pro

PR ChinaAlexander Fischer

+ 86 (21) 61 63 53 48

alexander.fischer@roedl.pro

RomaniaBogdan Fratila

+ 40 (21) 31 02 162

bogdan.fratila@roedl.pro

SingaporePaul Weingarten

+ 65 62 38 67 70

paul.weingarten@roedl.pro

SlovakiaMaros Tóth

+ 421 (2) 57 20 04 11

maros.toth@roedl.sk

South AfricaDieter Sommer

+ 27 (11) 47 93 000

dieter.sommer@roedl.co.za

Spain – BarcelonaChristoph Himmelskamp

+ 34 (93) 23 89 370

christoph.himmelskamp@roedl.es

Spain – MadridGeorg Abegg

+ 34 (91) 53 59 977

georg.abegg@roedl.es

ThailandMartin Klose

+ 66 (2) 67 00 670

martin.klose@roedlasia.com

TurkeyMetin Sagmanli

+ 90 (212) 31 01 400

metin.sagmanli@roedl.pro

UkraineKlaus Kessler

+ 380 (44) 58 62 303

klaus.kessler@roedl.pro

USUllrich Kämmerer

+ 1 (404) 58 63 502

ullrich.kaemmerer@roedlusa.com

VietnamSebastian Pawlita

+ 84 (8) 38 24 42 25

sebastian.pawlita@roedl.pro

Rödl & Partner Contacts

Rödl & Partner is active at 87 wholly-owned locations in 39 countries. The integrated fi rm for audit, legal, management and tax consulting owes its dynamic success to over three thousand entrepreneurial colleagues.

In close collaboration with our clients we develop information for well-founded economic, tax, legal and IT decisions that we implement together – both nationally and internationally.

> 87 offi ces > 39 countries > one fi rm www.roedl.com

Success without borders!We advise businesses worldwide.

„Each and every person counts“ – to the Castellers and to us.

Human towers symbolise in a unique way the Rödl & Partner corporate culture. They personify our philosophy of solidarity, balance, courage and team spirit. They stand for the growth that is based on own resources, the growth which has made Rödl & Partner the company we are today.

„Força, Equilibri, Valor i Seny“ (strength, equilibrium, valour and common sense) is the Catalan motto of all Castellers, describing their fundamental values very accurately. It is to our liking and also reflects our mentality. Therefore Rödl & Partner embarked on a collaborative journey with the representatives of this long-standing tradition of human towers – Castellers de Barcelona – in May 2011. The association from Barcelona stands, among many other things, for this intangible cultural heritage.

Rödl Equity Partner Beteiligung GmbH & Co. KG

Äußere Sulzbacher Str. 100

90491 Nürnberg

Tel.: + 49 (9 11) 91 93 – 0

Fax: + 49 (9 11) 91 93 – 19 00

E-Mail: info@roedl.de

www.roedl.com

„Each and every person counts“ – to the Castellers and to us.

Human towers symbolise in a unique way the Rödl & Partner corporate culture. They personify our philosophy of solidarity, balance, courage and team spirit. They stand for the growth that is based on own resources, the growth which has made Rödl & Partner the company we are today.

„Força, Equilibri, Valor i Seny“ (strength, equilibrium, valour and common sense) is the Catalan motto of all Castellers, describing their fundamental values very accurately. It is to our liking and also reflects our mentality. Therefore Rödl & Partner embarked on a collaborative journey with the representatives of this long-standing tradition of human towers – Castellers de Barcelona – in May 2011. The association from Barcelona stands, among many other things, for this intangible cultural heritage.

Rödl Equity Partner Beteiligung GmbH & Co. KG

Äußere Sulzbacher Str. 100

90491 Nürnberg

Tel.: + 49 (9 11) 91 93 – 0

Fax: + 49 (9 11) 91 93 – 19 00

E-Mail: info@roedl.de

www.roedl.com

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