power deals 2014

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Power & Renewables Deals2014 outlook and 2013 review

www.pwc.com/powerdeals

Mergers and acquisitions activity within the global power, utilitiesand renewable energy market

US$141.0bnWorldwide power andrenewables deal value down10% year on year

36% Asia Pacific buyers account forthe biggest share of activity

25%Increase in renewables deal value

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The role of governments andenergy politics

Energy politics are intensifying with,in some cases, profound effects,particularly in Europe. In the UK powerprices have become a politicalbattleground and the focus of renewableenergy growth has switched fromonshore to offshore, partly in response toplanning protests. Spain is experiencinga testing overhaul of many aspects of energy policy. Examples outside of Europe include price reforms in Braziland discussions on renewables targets

in Australia, which have given pause forthought among dealmakers. Thetrilemma between security, affordability and sustainability has become an urgentissue. In Europe twelve leading company CEOs have called for a change of direction in current EU energy policy which they say has led to a failure incompetitiveness, a failure in security of supply and a failure in climate change.Uncertainty on energy reforms andpriorities are a factor in investment andM&A caution. In some territories and onsome issues there are reasons to expect2014 will bring greater clarity andconfidence, spurring deal activity. But inother cases, question marks remain.

The shift to growth markets

The balance shift to faster growing

markets and away from developedmarkets, particularly Europe, willcontinue to be an important contributorto M&A activity. This trend is wideningout to encompass a broader range of countries. Progress on the energy reformspassed by Mexicos lower house inCongress will be viewed with interest by international investors and corporates,eyeing the opening up of retail electricity sales. Also, increasingly, frontier marketsare likely to be a focus for investment.

GDF Suez, for example, is seeking toaccelerate activities in countries suchas Vietnam and recently signed amemorandum of understanding for thedevelopment of renewable powerprojects in Mongolia. Chinese powercompanies and Japanese trading housesare already very active in sub-Saharan Africa. Investment in such markets isoften in the form of project developmentfinance rather than through M&A.But reforms such as those in Nigeriacould eventually lead to wider M&A involvement if international investorsbecome sufficiently reassured about thenew market and regulatory environment.

The power utilities sector is experiencing a period of hugetransformation. Technology, finance and politics are all sources of disruptive change hitting the industry and this hasbeen among the factors weighing on deals in 2013. Many uncertainties remain as we move into 2014 but we also see some encouraging trends that lead us, on balance, to anticipateupward deal momentum in the year ahead. In this section, welook at the influences on deals and specific expectations for power and renewables deal activity. In the later regional sections, we examine the deal outlook in each region.

2 Power & Renewables Deals 2014 outlook and 2013 review

2014 deal outlook:momentum shifts towardsthe upside

Norbert SchwietersGlobal Energy, Utilities & Mining Leader

Rob McCeneyGlobal Power & Utilities Transaction Services

Welcome to our 2014 Power and Renewables Deals outlook. It isthe latest in our annual series in which we look at mergers andacquisitions activity in the powerutilities sector.

We start the report with a lookat some of the main themes that will drive deal activity in the yearahead. Mergers and acquisitionsactivity is taking place against abackdrop of transformation inthe sector. This is influencing dealactivity and we are seeing shiftsin ways of financing, shifts in participation in the sector as well as M&A strategies that ref lect

the changing business strategiesthat companies are deployingin response to transformation. Participation in the sectorcontinues to widen with theattractions of contracted orregulated returns pulling in a wide range of buyers.

On the following pages wehighlight the key developmentsthat are likely to characterise 2014 M&A activity in the sector worldwide. We also look at themain deal hotspots which provide particular deal opportunities as well as reviewing who is doing what and where. We conclude thereport with a look at activity inthe main regions of the Americas, Asia Pacific and Europe.

Introduction

Andrew McCrossonGlobal Power & Utilities Transaction Services

2014 deal outlook 2 Deal flow 5 Deal makers 6 Deal places 8Contacts 15

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1 E.ON website, investors section.

North America

Generation assets MidstreamCorporate M&A Renewables

Brazil

Mexico

Generation assets Midstream Retail

Africa

Government salesGeneration assetsTransmission g rowth

India

Generation assets Renewables

Europe

Sales by governmentsCorporate divestmentsOnshore and offshore wind Nuclear

Figure 1: Global deals outlook and opportunities areas of activity

Source: PwC, Power & Renewables Deals

Australia

GenerationGovernment sales

Asia Pacific

Renewables

Value flows from co-investment structures

Corporates are exploring different optionsfor how they can best realise value fromassets. For example, European utility company E.ONs investment strategy talksabout less capital, more value and states:Our capital will serve as an enabler,allowing us to focus on processes that createthe most value. Well design partnershipsthat require less than full ownership andthat enable each partner to contribute whatthey do best. 1 Co-investment structuresoften involve minority stakes with financial

investors, in some cases, actually preferringnot to take control. Indeed, because of thatpreference sellers are sometimes gainingmore value than if they had sold a majority stake. Another approach is to structuredeals so that the investment partner is theasset owner and the power utility company is the asset operator. For example, inDecember 2013 GDF Suez announced a deal whereby Crdit Agricole Assurances (CAA)takes a 50% stake in the GDF Suezsubsidiary Futures Energies InvestissementHolding (FEIH). The deal provides a routefor Crdit Agricole Assurances to pursueinfrastructure investments with GDF Suezremaining in charge of the development,construction and operation of present andfuture wind farms.

The investor search for yield

The thirst of investors for yield continues

unabated. The steady, long-term returnsavailable from regulated assets in thepower utilities sector are attractive toinvestors, particularly in a low interestenvironment. Network assets have been afocus in the last few years. Now, financialinvestor interest is moving beyondnetwork assets into generation. Recently,for example, one of Japans biggestpension funds, alongside Canadianpension interests and other investors,bought into the Midland Cogeneration

Venture (MCV), a US$2bn electricity plant in Michigan, US. In the renewablessector, we have seen an increasingnumber of investment yield vehicles andholding companies designed to giveinvestors access to portfolios of longerterm contacted assets, renewables inparticular. We see no letup in suchinvestor interest in 2014. But outside of the renewables space, it is a crowdedmarket with a shortage of the right kindof power utility assets becoming available with long-term regulated or contractedreturns.

Changing gas economics creatingopportunities

The advent of shale gas is changing theeconomics of the gas energy landscape.The impact on the power market isreaching far beyond North America.Declining US gas prices have increased the volume of exported coal and the dynamicsof global liquefied natural gas (LNG) trade.The effect on lower European coal priceshas made coal a higher margin fuel sourcethan gas and left many gas-fired plants inEurope on the sidelines. In the US, lowergas prices have not automatically

translated into profitability for gas-firedplant with other factors impacting planteconomics, primarily general marketoversupply. Uncertainty always brings dealopportunities for buyers anticipating thatsuch assets will become more economic.In the US, we expect to see growinginterest in any available gas generationassets. In Europe, we have seen someisolated deals with investors such asMacquarie snapping up power plant assets,although most owners have sat tightduring the distress period, some with thehelp of refinancing. Longer term, gas couldprovide a sweet spot in the marketplace.We also expect continued interest inpipeline assets. In the US there is activity around master limited partnership (MLP)

Power & Renewables Deals 2014 outlook and 2013 review 3

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Capital market conditionsencourage sellers

Capital markets are providing a muchbetter environment for both privateplacements and public offerings than even just a year ago. The appetite shown by investors, for example, for the privateplacement by the state of part of Italianpower grid operator Terna and thesuccessful public float of Infinis by privateequity seller Terra Firma in the UK provided examples of an upturn in marketconditions during 2013. Market volatility cant be ruled out but increased confidenceis continuing into 2014 and is likely toencourage sellers, both private and state. Already, on the state divestment list, thereis significant deal activity for power assetslined up in a number of countriesincluding the UK, Australia, New Zealandand Poland.

Disruption and transformation ofthe power utility business model

The traditional power utility businessmodel is under pressure. In parts of Europe, baseload power generation fromgas and nuclear no longer makes economicsense for utilities. In countries from the USto Japan there is a big focus on electricity self-generation behind the meter.

Companies are increasingly recognisingthat to stay profitable and succeed in theperiod ahead, they will need to adapt theirbusiness models to a power environmenttransformed by changes such asdecentralised power, technologicalchanges and customer own-generation.The shift to growth markets is oneresponse to this. Other responses includea greater emphasis on higher marginactivities such as trading and the provisionof energy services to customers with thelatter reflected in a flow of smaller M&A deals by power utilities to strengthen theirenergy services positions. While notnecessarily having a big impact on 2014deals, the influence of these changes isbeing increasingly felt and is an importantlong-term consideration affecting dealstrategies.

ownership of pipelines and spin-offs of pipeline assets into MLPs by explorationand production owners. Also, displacementof LNG cargoes from the US will createinvestment, and potentially M&A,opportunities in both the liquefaction andregasification sides.

Anticipating implication ofcompetitive reviews

Energy is in the public eye in many countries and governments have eitherembarked on changes in policy or possiblereforms are in sight. Power utility companies are used to managing politicaland regulatory risk. Part of this is makinga judgment on whether it makes sense tomake M&A moves to fit with businessgoals in advance of any reforms ratherthan wait and make changes in response

to regulation. In the UK, for example, thepolitical debate about energy pricing hasbeen intense and the separation of retailfrom generation is an option favoured by the main opposition party. If the likelihoodof such moves rises up the agenda, then itmight increase the possibility of advanceM&A moves by companies to migrate todifferent parts of the value chain anddivest generation or retail.

Return of mega-merger potentialin the US

Big deal activity between US corporateshas been on the back burner as some of theleading players focused on integrationsfollowing a wave of mega deal activity in2010 and 2011. But with much of theregulatory hurdles and bedding-down of the previous wave of deals completed,corporates will be returning to the dealtable. The timing is now right for a pick-upof deals for smaller utility targets andpossibly larger integration deals.

Natural resource players look tomove downstream

There are signs of natural resourcecompanies moving downstream to gain apresence in the power markets for theirresource production. Gazprom has longshown an interest in diversifying into endmarkets and has minority ownerships as

well as its own marketing operations in anumber of European countries. Its 2013US$3.8bn purchase of Moscow Integrated

Power Company was a significant movedownstream. In Asia, the worlds largestcoal distributor, Chinas Shenhua Group,took part in the early stages of the sale of Australias Macquarie Generation before withdrawing. It already has power stationinterests in China but this would have beenits first foreign downstream move. ShenhuaGroup sets itself a future goal of buildingan internationally competitive and first-classcoal and energy enterprise and says it willmake full use of the groups advantage of the integration of mine, power (and otheractivities). 2

Asia Pacific go-abroad activityremaining strong

International moves by Japanese tradinghouses, Chinese state-owned enterprisesand Aesean companies remain a strong

feature of the power utilities sector.Targets in the Asia Pacific region, in Northand South America and in Europe are ontheir radar. In all territories, caution is a watchword and companies are taking theirtime over deals. But we are seeing a notableflow of acquisitions (see regional sections)by Chinese state-owned enterprises likeState Grid Corporation of China and ChinaSouthern Power Grid, and this is likely tocontinue to be the case in the year ahead.

Renewables deal flow trendingupward

We see the underlying upward trend inrenewables deals that characterised thelast twelve months continuing into 2014.In Europe, the volatility that characterisedgovernment policy support in the last few years is subsiding with some of the key issues starting to be resolved, althoughcountry by country variances remain.In all of the main regions there is a flow of deals arising from completed projects asdevelopers sell to recycle finance into newprojects. Renewable power is a majorsource of yield for investors in the sectoras evidenced by Berkshire HathawaysUS$2bn solar investment in the US (seelater regional section). Despite someuncertainties arising from possible revisionsto renewable energy targets in Australia,an increasing focus on renewables incountries such as India, Japan and Chinashould enhance the long-term outlook for

renewable assets in the Asia Pacific regionas a whole. We are also seeing some signs of take-off in renewables investment in Africa.

2 Shenhua Group company profile.


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Domestic deals

Crossborder deals

Figure 3: Electricity and gas sector deal activity (US$bn)

US$bn20 60 100 140 180 220 260 300 340 380

49 136 1852011

35 104 1392012

2009 47 51 98

2008 74 121 195

2007 143 230 373

2010 46 105 151

2013 40 79 119

Total worldwide power and renewables 2013 deal value wasdown 10% year on year, falling to US$141.0bn (figure 2). Deal numbers were also down, by 6%, and there was also abig fall in the total value coming from gas deals, down 38%. In contrast, both the total value and number of renewable power deals rose. Renewables deal value was up by 25% yearon year, from US$17.5bn in 2012 to US$21.9bn in 2013.

Deal flow: deals take a downward turnThe upturn in deals for renewable powertargets comes with the sector seeing asteady flow of deals as power utility companies seek to capitalise on renewableeconomics. The sector is also attractiveto financial buyers because of thepredictable returns that flow fromcompleted projects with long-termcontracts or regulated returns. But thetotal US$21.9bn of renewable powerdeal value was not enough to match theUS$26bn total reached two years earlier,in 2011.

The 2013 total remains firmly in the rangeestablished since the post financial crisislow of 2009 (figure 3). And, as in other years since the financial crisis, domesticdeals dominated, accounting for 66% of the value of all non-renewable electricity and gas deals. But there was an upturn ininternational deals, with their share rising

from 25% to 34% of total deal value.Nonetheless, much of the focus continuesto be on deals closer to home as many companies in mature markets reign in allbut the most strategic internationalexpansion ambitions and concentrate onbalance sheet constraints and the demandsof capital investment programmes.


Total deals

Gas

of which: Electricity

Figure 2: All electricity, gas and renewables deals by value (US$bn) 2012 and 2013

2012 2013 Change in 2013Number Value Number Value % number % value

399 US$91.7bn 374 US$90.1bn (6)% (2)%

194 US$47.1bn 140 US$29.0bn (28)% (38)%

1,062 US$156.3bn 997 US$141.0bn (6)% (10)%

Renewables 469 US$17.5bn 483 US$21.9bn 3% 25%

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The diversity of M&A investment in the power sector continues.The share of corporate buyers was up significantly year on year, from 64% to 74% of deal value (figure 4). Acquisitions by buyers such as insurance funds, pension funds, sovereign wealth fundsand others who are not corporates within the sector continue toremain significant.

Deal makers: whos doing what

On the face of it there are big year on yearchanges in the amount of deal valueaccounted for by buyers in the institutionand other categories. Some of the fall inthe institution total is accounted for by fewer big deals involving state institutionson the buy-side. In 2012, US$12.5bn ofthe US$40bn institution total was fromthe Japanese governments nationalisationof the Tokyo Electric Power Company.There was also the US$4.4bn Italian statedevelopment bank acquisition of a stake

in Snam that year and other activity involving sovereign wealth funds.The other category tends to be volatileand was boosted in 2013 by four US$1bnplus deals in 2013 compared with justone in 2012.

These non-corporate buyers are featuredin many big deals. Although not so visiblein the top five (figure 6), 10 out of the 30deals in 2013 worth US$1bn or more hadnon-corporates on the buy side, a 33%share. This compares with nine out of 31,a 26% share, in 2012.

Figure 4: Institutional and infrastructure bidder activity (Deal value shown in parenthesis)

Corporate 64%

Infrastructure fund 6% (US$9.8bn)

Institution 26% (US$40.1bn)

Other 4% (US$5.9bn)

Source of funds 2013Corporate 74% (US$103.8bn)

Infrastructure fund 7% (US$9.5bn)

Institution 12% (US$17.4bn)

Other 7% (US$10.3bn)

Source of funds 2012(US$100.5bn)

Note: Corporate includes energy and power and utility companies; Institution includes pension funds, insurance funds, mutual funds,sovereign wealth funds and banks, etc.; Infrastructure fund includes specialised infrastructure funds and private equity funds;Other comprises sovereign state, market purchase, private investor, non-disclosed acquirers, management buy-out, etc.Source: PwC, Power & Renewables Deals

The top five deals table shows the wide geographic range of top deals.Chinese and American buyers areprominent with the former focused ontargets in Australia and Hong Kong andUS buyers focused domestically.In addition, there is the privatisation of Moscow Integrated Power Company.We discuss these deals and other dealsin the regional sections that follow.

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Europe leads the way in terms of the number of deals but it is Asia Pacific buyers that are firmly in front as measured by the value of deals. Asia Pacific bidder activity as a share of all worldwide power deal value rose from 33% in 2012 to 36% in 2013 with the share of target value coming from the regionrising from 27% to 31%.

Deal places: regional analysis

the Americas, Europe and, increasingly,in Africa. Africa is a growing focal pointfor power deals as well as capital projectinvestment. For example, Korea ElectricPower Corporation was a buyer in Nigeria

in 2013, acquiring a 70% stake in theEgbin power plant from the Nigeriangovernment in a US$407m deal. The deal was part of the privatisation and widerreforms of the power sector taking place inNigeria. African deal value trebled year on year between 2012 and 2013, albeit froma low base (figure 9). The region needs250GW of new generation by 2030, muchof which will need to come throughcommitments from and partnerships withother continents.

A continuing predominant global trendis outbound activity by Chinese powercompanies, Japanese trading houses andKorean companies, both within the wider Asia Pacific region and further afield in

Figure 8: 2013 deal percentages by continent(2012 percentages shown in parenthesis)

Europe 36% (35%)

North America 20% (22%)

Asia Pacific 27% (24%)

South & Central America 7% (9%)


Russian Federation 7% (7%)

Deal number by bidder

Europe 36% (35%)





Africa 1% (1%)

Middle East 0% (1%) Middle East 1% (1%)

Africa 2% (2%)

Deal number by target


Europe 31% (33%)




Deal value by bidder


Europe 27% (30%)




Africa 1% (1%)

Middle East 0% (0%)

Africa 2% (1%)

Deal value by target

Middle East 0% (0%)

Figure 9: Deals involving African buyers or targets

Value of deals (US$bn) 2012 2013 % change

By target 1.0 3.3 223%

By bidder 0.8 2.1 151%


Number of deals 2012 2013 % change

By target 18 20 11%

By bidder 12 14 17%

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Deal activity in the Americashas been steady rather than spectacular after some significant deals in earlier years. But after a period of bedding-down of deals and getting them through the various regulatory hurdles, we anticipate an upturn indeals in 2014. In North America, for example, a significant wave of power M&A took place in 2011 withUS$107bn of targets inelectricity and gas alonecompared with US$30.0bn inthose segments in 2013 anda further US$6.6bn in

renewables.

Americas In a similar vein, Berkshire Hathaway demonstrated its view on the economicsof renewable energy by acquiring twoCalifornia solar projects frommanufacturer and developer SunPower forUS$2bn. Projected for completion by theend of 2015 and with a capacity of 579MW, the projects are described by MidAmerican as the worlds largest solarpower development under construction.

Regulatory ups and downs

The experience of Entergy and ITChighlights the difficulties in the way of deals to separate and divest electricity networks in the US. The two companieshad to terminate their pursuit of aspin/merger of Entergys transmissionbusiness with ITC in the face of regulatory pressure. But a recent Federal Energy Regulatory Commission order (FERC1000), designed to encourage a more

coordinated build-out of new transmissionlines, looks set to stimulate power utility companies to form transmissionpartnerships to compete on projects.

Gas pipeline assets continue to providea number of deal opportunities, withacquisitions by master limited partnerships(MLPs) and some spin-offs. A move toextend MLPs to renewable energy projectsis receiving bipartisan support and, if enacted, could spur investment in dealsfor wind and solar generation.

With earlier deals under their belts, weexpect the appetite of corporate buyersfor larger deals to return in the yearahead. With companies under ratepressure and having spent a considerableamount of time taking cost out of theirbusinesses, acquisitions are a timelyroute to finding synergy cost savingsand maintaining earnings and dividendgrowth. We anticipate a return ofmega-mergers in the US$5bn plus bracketand an upturn in the acquisitions of utilities in the sub US$5bn marketcapitalisation range.

A strong US deal outlook

This is likely to make for a strong US powerand renewables deal market in 2014 whencombined with a continued shedding of non-regulated assets by hybrid utilities,a continued need for regulated utilitiesto find cost savings, and a desire for yield

driving renewable transactions including YieldCo IPOs and strong inbound interest.Inbound interest has come in the shapeof Canadian, Japanese and Australianfinancial buyers searching for yield andCanadian power companies extendingsouth. Inbound buyers have largely beenfrustrated in 2013 with a shortage of targets but we are seeing considerablecontinued interest. 2013 ended with theannouncement of Fortis, Canadas largestinvestor-owned power utility, biddingUS$2.5bn for Arizona-based UNS Energy Corporation.

The two biggest 2013 deals in each of themainstream power and the renewablessectors both came from investments madeby MidAmerican Energy Holdings, asubsidiary of investor Warren BuffettsBerkshire Hathaway investment company.Consistent earning power is a mantra forthe Buffett investment strategy with thelong-term regulated returns available inenergy a favoured target. MidAmerican

bought NV Energy in a deal worthUS$10.4bn, adding 1.3 million Nevadacustomers to its existing 7.1 millioncustomer base.

The Latin American deal spotlight islikely to turn to Mexico in 2014.

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Latin American spotlight turns to Mexico

The trend in South America has also beensteady after a significant recent deal peak in 2012. The total value of deals for South American power and renewables targetshas halved year on year, down toUS$5.8bn in 2013 from US$11.7bn in2012 when the total was buoyed by biginbound purchases by State GridCorporation of China and E.ON as wellas deals by regional players. Inboundinvestment is likely to continue to besignificant. State Grid, for example, hassaid it plans to invest US$10bn in Brazilin the period to 2015.

But electricity market price reform hasslowed deal activity in Brazil. Withelections ahead in 2014, dealmaking islikely to remain at a relatively low level.

A market downturn has also put pressureon Brazilian power utility companies.One electricity distribution utility group,Rede Energia, has filed for bankruptcy anda sale is likely. The scope for consolidationis considerable, particularly in distribution.

The Latin American deal spotlight islikely to turn to Mexico in 2014 whereenergy market reforms are set to stimulateinterest from foreign investors. Foreignprivate investment is already significant

with, for example, the presence of companies such as Spains Iberdrolaand Unin Fenosa and Japans Mitsubishi.But electricity sales have had to bechannelled through the state-runelectricity monopoly. That is set to change with companies able to sell direct tocustomers.

Figure 10: North America quarterly tracking of deals 2012 and 2013(Number of deals shown in parenthesis)

By value (US$bn)

2012

201313.0 (48)Q2

7.9 (56)Q3

9.9 (55)Q4

Renewables Gas Electricity

Q1 5.9 (38)

Q4 12.1 (68)

Q3 17.0 (48)

Q2 6.9 (61)

Q1 9.4 (60)

US$bn50 10 15 20 25

Sour ce: PwC, Power & Renewa bles Deals

Figure 11: South & Central America quarterly tracking of deals 2012 and 2013(Number of deals shown in parenthesis)

By value (US$bn)

2012

20131.3 (16)Q2

2.3 (20)Q3

1.0 (23)Q4


Q1 1.3 (13)

Q4 1.6 (18)

Q3 2.2 (21)

Q2 5.5 (22)

Q1 2.4 (35)

US$bn50 10 15 20 25


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Asia Pacific power andrenewables dealmaking continues on an upwardtrajectory, driven by strong deal dynamics in many parts of the region andcontinued worldwideexpansion appetite. Deals for Asia Pacific targets rose 6% year on year from 2012 to 2013 while target deal value was also up 6%, fromUS$41.7bn to US$44.3bn.

Asia Pacific The outlook for renewable energy dealmaking in Australia is somewhatclouded by the proposed cessation of thecarbon tax; the impact of reduced energy demand; and an upcoming review andpossible reduction of renewable energy targets. But there are indications thatrenewable energy investment by financialinvestors in other countries, such as Japanand India, is picking up. For example,Goldman Sachs extended its investmentsin Indian windpower during the year and was reported as planning to invest up toUS$487m in renewable energy projects inJapan in the next five years. The ChineseGovernments policy emphasis on cleanenergy may also spur renewables dealactivity in China.

Government divestments

Capital recycling by governments isexpected to be a contributor to deals in

the coming period. As we move into 2014,the New South Wales government in Australia is in the final stages of sellingthe largest state-owned generator,Macquarie Generation, in order to raisefunds for infrastructure investment.Initial interest in the sale came from theChinese state-owned mining and energy company Shenhua Group, AGL Energyand Queensland-based ERM Power.

Following the 2013 sales of New SouthWales state-owned Delta ElectricitysMount Piper and Wallerawang powerstations to Energy Australia forUS$438.5m and Eraring to Origin Energy,there are plans to sell Deltas powerstations at Vales Point and Colongraduring 2014. In Western Australia, thegovernment is going into 2014 stateelections on a promise of no assetprivatisations but a number of contradictory reports have stated thatsome power sales are likely. Similarly,Queensland is expected to sell its state

owned generation. Attention will also turnto New Zealand where the government islooking to partially privatise up to 49%of Meridian Energy via an IPO.

Three quarters of Asia Pacific 2013 targetdeal value stemmed from non-renewableelectricity deals. But it was growth in thetotal value of gas deals, up from US$2.8bnto U$5.8bn year on year, and renewables,up from US$3bn to US$4.8bn, that drovethe year on year increase. The number of deals involving Asia Pacific buyers roseby 4%, with total deal value staying fairly constant at US$50.2bn from US$50.9bnthe year before.

Momentum set to continue

Looking ahead over the next year, weexpect to see continued power dealsmomentum in the region. In Australia,for example, improved equity marketconditions have encouraged theenvironment for IPOs and scrip for scripdeals. And, in power and utilities, 2013ended with the announcement of apredominantly scrip takeover of gas

distributor Envestra by APA Group, Australias largest transporter of naturalgas.

The deal environment varies considerably in different countries in the region.Both India and Australia, for example,face difficult market conditions. In India,coal shortages and a hiatus in policy progress on important market issues arestalling deal potential. Elections in 2014 will create a further delay in any dealmomentum. In Australia, the environmentfor deals is much more promising butpower generation companies are havingto manage difficult trading conditionsarising from a softening of demand againsta 20% renewable energy target and theincreased impact of distributed generation,particularly solar PV.

Looking ahead over the next year, we expect to see continued power deals momentum inthe region.

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Earlier in 2013, the Indian governmentcontinued its divestment of NTPC Limited,the largest state-owned electric utility company in India, with a further 9.5%interest divested to the market in a deal worth US$2.1bn. It is expected that anumber of Indian coal based powerprojects will partially divest as developersseek to raise funds to pay down debt orfund other projects.

International activityintensifies

Australian financial buyers, Japanesetrading houses and Chinese and Koreanpower companies were all buyers of powerand renewables assets inside and outsideof the region in 2013. Out of regiontargets were predominantly in Europe andNorth America but there were also smaller

deals in South America and Africa. At thebeginning of 2013, State Grid Corporationof China stated that it plans to investUS$3050bn in overseas assets in theperiod to 2020.

The largest international transaction wasState Grids US$7.5bn purchase ofa 19.9% stake in SP AusNet fromSingapore Power International together with a 60% stake in SPI (Australia) AssetsPty Ltd, the latter locally known asJemena. Both Jemena and SP AusNetoperate gas transmission and distributionnetworks as well as electricity networks.It will be interesting to see whether StateGrid might build on this foothold to gainexperience in gas networks to sit alongsidetheir core power transmission activity.

Figure 12: Asia Pacific quarterly tracking of deals 2012 and 2013(Number of deals shown in parenthesis)

By value (US$bn)

2012

201315.3 (63)Q2

11.7 (74)Q3

11.1 (74)Q4


Q1 6.2 (56)

Q4 5.0 (76)

Q3 11.2 (56)

Q2 17.8 (73)

Q1 7.7 (48)

US$bn50 10 15 20 25


The bigger out of region targets for Asia Pacific buyers were predominantly in Europe and North America, with smallerones in South America and Africa.

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Power and renewables dealactivity in Europe dipped in 2013. The number of deals for European targets wasdown 3% year on year whiletarget deal value was down16%, from US$52.1bn toUS$43.7bn. We have separatedout activity in the Russian Federation. Here target dealnumbers rose slightly whiletarget deal value was up from US$4.1bn to US$7.3bn.The increase in Russiandealmaking was led by theUS$3.8bn sale of just under90% of Moscow Integrated Power Company to Gazprom

as part of Moscow City Governments privatisation programme and the US$1.3bnownership restructuring of Russian Grids.

Europe The major European power utility companies continue with their divestmentprogrammes and balance sheetrestructuring. The second largest 2013deal saw GDF Suez and E.ON sell their50/50 jointly held 49% indirect state inSlovak gas operator Slovensky Plynarensky Priemysel to Energeticky a Prumyslovy Holding in a US$3.5bn transaction.

Offshore power positioning

In the renewable power sector, two fundsmanaged by Goldman Sachs and twoDanish pension funds acquired a stake inDenmarks Dong Energy. The US$2bn deal will give Goldman Sachs and the twopension funds approximately 19% and 7%respectively of the company. In part it is aplay on expansion of offshore wind energy in Europe and a future IPO is planned when conditions are right.

Asia Pacific investors continue to be activeacquirers of European power assets.The two largest such recent deals saw Australian infrastructure fund managerHastings buy Phoenix Gas, a gasdistribution network serving Belfast inNorthern Ireland, in a US$1.1bn deal;Japanese trading house Mitsubishi formedthe Blue Transmission JV (a consortiumof Japanese trading house, Mitsubishi andBarclays infrastructure funds) invested ina US$719m deal for subsea transmissioncables from the London Array offshore wind project in the UK.

Europe no longer has the biggest share of target deal value among the regions.The trend away from Europe is, in part, areflection of the constraints faced by many European power utility companies and thematurity of the market opportunity inEurope. Corporate buyer activity has beensubdued and no European deals were bigenough to feature in the 2013 power dealstop five (p7).

Strong flow of US$1bn plusdeals

The headline deals and trend disguisesmuch important European activity.Thirteen of the 30 $US1bn plus deals in2013 were for European targets, many of them for network assets. Europe iscontinuing to provide a hunting-ground foracquisitions by insurance, pension fundand other financial investors. The largest2013 deal for a European target was

Fortums sale of its Finnish powerdistribution grid, Suomi Power Networks,to a consortium of institutional investorsled by First State Investments and BorealisInfrastructure, the investment arm of Canadian pension fund Ontario MunicipalEmployees Retirement System, in a deal worth US$3.5bn. Fortum is also preparingfor a possible sale of its Swedish andNorwegian electricity distributionbusinesses.

There is a trend towards consolidation of European gas network assets and thisgathered pace with the sales of TIGF inFrance by Total (US$3.3bn) and Net4Gasin the Czech Republic by RWE (US$2.1bn).The sales illustrates the appetite amonginsurance and financial investors forregulated network assets. For example,the Czech gas grid operator was boughtby a consortium of Allianz and BorealisInfrastructure.

The headline deals and trend disguises a lot of big deal activity. Thirteen of the 30 US$1bn plus deals in 2013 were for European targets.

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Potential for a dealbounce-back

The recent deal environment in Europehas not been helped by uncertain energy politics, a general election in Germanyand intense price politicking in the UK,Spain and many other European countries.Some regulatory and policy issues arelikely to remain uncertain but others, suchas onshore and offshore wind subsidiesin the UK, are nearing resolution.Governments are also moving to addressthe crucial issue of support for gas-firedgeneration in the market. Difficult andcontroversial electricity and gas policy reform in Spain is expected to be finalisedin early 2014.

These policy moves are likely to spurdealmaking held back by earlieruncertainty. We have already seen moves

in the UK offshore sector. The nuclearsector in the UK is likely to produce majordeals. Toshiba-owned Westinghouse hasannounced the acquisition of Iberdrolasstake in the NuGen nuclear consortium. And the UK governments planned sale of uranium enrichment company Urenco, with other owners, the Dutch governmentand German utilities, RWE and E.ON, islikely to move forward if political, security and technical concerns can be overcome.

On the divestment front, all eyes will beon E.ON and the rumours about apotential sale of the companys powergeneration and other assets in Italy.The company is the fourth largest utilityin the country and added to its footprintthere when it took on a number of Endesas assets after the Spanishcompanys takeover by Enel. It is widely reported as having started the processof looking for buyers as it continues theprocess of reorienting its operationstowards growth markets.

Figure 13: Europe quarterly tracking of deals 2012 and 2013(Number of deals shown in parenthesis)

By value (US$bn)

2012

20138.3 (84)Q2

5.2 (87)Q3

10.2 (93)Q4


Q1 20.1 (99)

Q4 14.5 (101)

Q3 7.3 (108)

Q2 13.5 (85)

Q1 16.8 (82)

US$bn50 10 15 20 25


Figure 14: Russian Federation quarterly tracking of deals 2012 and 2013(Number of deals shown in parenthesis)

By value (US$bn)

2012

20132.1 (20)Q2

4.6 (32)Q3

0.4 (12)Q4


Q1 0.2 (10)

Q4 0.0 (6)

Q3 0.5 (8)

Q2 0.4 (32)

Q1 3.1 (24)

US$bn50 10 15 20 25


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Contacts


Global ContactsNorbert SchwietersGlobal Energy, Utilities & Mining LeaderTelephone: +49 211 981 2153Email: [email protected]

Andrew McCrossonGlobal Power & Utilities Transaction Services,Partner UK Telephone: +44 20 7213 5334Email: [email protected]

Rob McCeneyGlobal Power & Utilities Transaction Services,Partner USTelephone: +1 713 356 6600Email: [email protected]

Paul NillesenGlobal Renewable Energy, Partner Netherlands

Telephone: +31 20 568 6993Email: [email protected]

Territory Contacts Africa Angeli HoekstraTelephone: +27 11 797 4162Email: [email protected]

ArgentinaJorge BacherTelephone: +54 11 5811 6952Email: [email protected]

AustraliaJock OCallaghanTelephone: +61 3 8603 6137Email: [email protected]

Andy WelshTelephone: +61 3 8603 2704Email: [email protected]

AustriaMichael SponringTelephone: +43 1 501 88 2935Email: [email protected]

BrazilGuilherme ValleTelephone: +55 21 3232 6011Email: [email protected]

CanadaLana PatonTelephone: +1 416 869 8700Email: [email protected]

Central and Eastern EuropeDirk BuchtaTelephone: +420 251 151 807Email: [email protected]

ChinaGavin ChuiTelephone: +86 10 6533 2188

Email: [email protected]

DenmarkPer TimmermannTelephone: +45 3945 3945Email: [email protected]

Sren Skov LarsenTelephone: +45 3945 9151Email: [email protected]

FinlandMauri HtnenTelephone: +358 9 2280 1946Email: [email protected]

FrancePhilippe GiraultTelephone: +33 1 5657 8897Email: [email protected]

Germany Norbert SchwietersTelephone: +49 211 981 2153Email: [email protected]

Jan-Philipp Sauthoff Telephone: +49 211 981 2135Email: [email protected]

GreeceSocrates Leptos-BourgiTelephone: +30 210 687 4693Email: [email protected]

IndiaKameswara RaoTelephone: +9140 6624 6688Email: [email protected]

Ireland Ann OConnellTelephone: +353 1 792 8512Email: [email protected]

IsraelEitan GlazerTelephone: +972 3 795 4 664Email: [email protected]

Italy Giovanni PoggioTelephone: +390 6 57025 2588Email: [email protected]

Japan Yoichi Y HazamaTelephone: +81 90 5428 7743Email: [email protected]

Toshio YamauchiTelephone: +81 80 4122 9506Email: [email protected]

Middle East Paul NavratilTelephone: +971 269 46 80Email: [email protected]

NetherlandsJeroen van Hoof Telephone: +31 88 792 1328Email: [email protected]

Norway Stle JohansenTelephone: +47 9526 0476Email: [email protected]

PolandPiotr LubaTelephone: +48 22 523 4679Email: [email protected]

PortugalJoao RamosTelephone: +351 213 599 405Email: [email protected]

RussiaTatiana SirotinskayaTelephone: +7 495 967 6318Email: [email protected]

SingaporeFernando ValdaTelephone: + 65 6236 4187Email: [email protected]

SpainManuel Martin EspadaTelephone: +34 915 685 017Email: [email protected]

Carlos Fernndez LandaTelephone: +34 91 568 4839Email: [email protected]

SwedenMartin GaveliusTelephone: +46 8 5553 3529Email: [email protected]

SwitzerlandMarc SchmidliTelephone: +41 58 792 1564Email: [email protected]

Turkey Murat ColakogluTelephone: +90 212 326 6434Email: [email protected]

United KingdomSteve JenningsTelephone: +44 20 7802 1449Email: [email protected]

Jason MorrisTelephone: +44 131 524 2265Email: [email protected]

Darren BloomfieldTelephone: +44 20 7213 3402Email: [email protected]

United StatesMichael A. (Casey) HermanTelephone: +1 312 298 4462Email: [email protected]

Jeremy FagoTelephone: +1 415 498 7031Email: [email protected]

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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should notact upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express orimplied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law,PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else

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January 2014 PwC. All rights reserved. Not for further distribution without the permission of PwC. PwC refers to the network of member firmsof PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each memberfirm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients.PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professionaljudgment or bind them in any way No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control

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For further information, please visit: www.pwc.com/powerdeals

Methodology

Global Power & Renewables Deals includes analysis of all global power utilities, renewable energy and clean technology deal activity. We include deals involving power generation, transmissionand distribution; natural gas transmission, distribution, storage and pipelines; energy retail; andnuclear power assets. Deals involving operations upstream of these activities, including upstreamgas exploration and production, are excluded. Renewable energy deals are defined as thoserelating to the following sectors: biofuels, biomass, geothermal, hydro, marine, solar and wind.Renewable energy deals relate to the acquisition of (i) operating and construction stage projectsinvolved in the production of renewable energy and (ii) companies manufacturing equipment forthe renewables sector. We define clean technology deals as those relating to the acquisition of companies developing energy efficient products for renewable energy infrastructure.

The analysis is based on published transactions from the Dealogic M&A Global database for allelectricity, gas utility and renewables deals. Deals are included at their announcement date whenthey are partially completed (pending financial and legal closure) or completed. Deal values arethe consideration value announced or reported including any assumption of debt and liabilities.Comparative data for prior years and quarters may differ to that appearing in previous editionsof our analysis or other current year deals publications. This can arise in the case of updatedinformation or methodological refinements and consequent restatement of the input database.

power deals 2014

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