In 2019 the world has seen a major interest of energy giants aggressively entering renewable energy market. We see such tendencies as the importance of renewable energy reflects the ambition of stakeholders throughout the value chain to increase exposure to renewables and to raise renewables' share of the energy mix.
As reported, in December 2019 a French major utility giant ENGIE bought Energias de Portugal's six hydro power plants in the Douro river basin in a deal valued at EUR2.2 billion including debt. Energias de Portugal now is the largest utility in Portugal, and it expects the deal to be completed by the second half of 2020.
ENEL, an Italian multinational energy company that is active in the sectors of electricity generation and distribution, as well as in the distribution of natural gas in 2019 has made a big push into renewables, investing in development of new capacities and entering existing projects via acquisitions, including its last year's USD644 million purchase from GE Energy Financial Services of a 50% share in seven US renewables assets.
Market giants like Shell and Total in 2019 were interested in acquisition of Dutch power and utility firm Eneco that is primarily focused on renewables.
Moreover, China makes a huge impact on global renewable energy market. According to International Energy Agency[1] the country's policies have promoted renewable energy use for over a decade, beginning with its Renewable Energy Law in 2005, which prioritized the development and use of renewable energy. In 2017, Chinese government announced it would invest 2.5 trillion Yuan (USD 377 billion) into renewable power generation by 2020 as part of its 13th Five-Year Plan on energy development. According to the country's National Energy Administration, the plan will increase installed renewable power capacity to 680GW by 2020.
Between 2019 and 2024, China will account for 40% of global renewable capacity expansion, driven by improved system integration, lower curtailment rates and enhanced competitiveness of both solar PV and onshore wind. During the same period, China forecasts to account for almost half of global distributed PV growth, overtaking the EU to become the world leader in installed capacity by 2021.
As we see, companies do not limit themselves within their domestic markets but expand over renewable markets in other countries and different continents.
Ukraine's M&A renewable energy sector in 2019
In 2019 the number of M&A deals decreased in comparison to 2018, still showing a great interest of investors in Ukrainian renewable market even though the law canceling "green" tariff for new projects and development of new auction system was adopted.
In 2019, Ukraine added about 4.5 gigawatts of renewable capacity, nearly tripling its total output to 6.8 gigawatts, which is more than 5.5% of its total energy mix, according to the Ukrainian State Agency for Energy Efficiency and Conservation.
Scatec Solar, an integrated independent solar power producer, headquartered in Oslo, acquired in Ukraine the 148 MW Progressovka project which is located in the Mykolaiv region in the South of Ukraine. As informed by the company, the project will be realized in collaboration with PowerChina Guizhou Engineering Co. Ltd. that will provide construction financing and Engineering Procurement and Construction (EPC) services to the project, while Scatec Solar will be the equity investor and provide EPC management, Operation & Maintenance as well as Asset Management services.
Another M&A deal of Scatec Solar in Ukrainian renewable market was entering the agreement to sell 40% of stake in its 32 MW Kamianka project in Ukraine to Dutch development bank FMO. The Kamianka project is Scatec Solar's second project in Ukraine located in the Cherkasy region in central Ukraine. The project is developed, constructed and operated by Scatec Solar and Scatec Solar is also the lead equity investor in the project with 60% ownership, while FMO holds the remaining 40%. The European Bank for Reconstruction and Development and FMO are providing 70% of the total estimated cost EUR35 million for the project, under a non-recourse debt financing.
Longyuan Power Group Corporation, the largest wind power producer in China and Asia, entered Ukrainian renewable market by acquiring 76.5MW Yuzhne wind project in Odesa region, southwest of Ukraine, as part of its world expansion. The Ukraine's Yuzhne project is the first Europe project invested by Longyuan Power, which was a significant milestone for Longyuan Power. The construction of 76.5MW Yuzhne wind project is to be started in 2020. This project is the third wind power project invested and developed overseas by the Longyuan after Canada Dufferin wind power project and South Africa De Aar wind power project.
As reported, Acciona, a Spanish conglomerate group dedicated to the development and management of infrastructure (construction, water, industrial and services) and renewable energy projects, has installed two photovoltaic plants in the Odesa region with a combined capacity of 42 MWp (nominal 32 MW), after acquiring 75% of both projects from the UDPR company, which holds a 25% stake. With an overall capacity of 43.7MW, the new PV plants will be built with an investment of nearly EUR30.6 million. The two plants are the 26MW Gudzovka and 17.7MW Arcyz. Acciona has strengthened its position in the renewables sector in Ukraine, where it owns and operates the 57.2-MWp (44 MW rated) Dymerka 2-3-4 photovoltaic complex in the region of Kyiv.
The German company De Raj Group AG in September announced execution of agreement with the Ukrainian STC Energy LLC on joint development of six solar power plants in the Kyiv region produced electricity of which is planned to be sold under the "green" tariff. These photovoltaic power plants will have a total production capacity of 88.371 MW.
The Lithuanian Modus Group implements strategy of renewable energy project expansion in Europe and Ukraine acquiring their first solar energy project in Ukraine. Investment was more than €11 million ($12.1 million). The solar power plant in Ivano-Frankivsk region in the western part of the country has an installed capacity of 13.5 MW.
Political uncertainties
2019 and early 2020 has been a turmoil year for Ukraine's renewable market due to political elite changes. As mentioned, a law introducing an auction system since January 2020 was adopted by the Ukrainian Parliament in April 2019 and signed by the Ukrainian President in May substituting the "green" tariff for new projects in renewables. A pilot auction must have been held by 31 December 2019, but never happened, as the procedure for auctions was not adopted. The new auction system was expected to create a transparent and competitive energy market in Ukraine, able to attract efficient investments. On the top of that, on 1 July 2019 a new electricity market of Ukraine was launched in accordance with requirements of the Third Energy Package.
Being the responsible party for smooth transition from the "green" tariff incentive system to auctions or other options for renewables the Ukrainian Government has not decided on the compromise what put a number of major investors in danger. The investors and the Government have been negotiating for months and started mediation in January 2020. If the compromise would not be found it would put at risk all further investments in renewable energy in Ukraine. As a result, major players will not enter Ukrainian renewable market as they did before 2020.
Coronavirus (COVID-19) pandemic
Global renewable energy capacity hit 2,537 GW at the end of last year, an increase of 176 GW compared to 2018, but the coronavirus continues to cast a shadow over the sector's prospects for 2020, impacting existing generating facilities and those under development.
According to figures from the International Renewable Energy Agency's "Renewable Capacity Statistics 2020" saying that the 2019 was not as successful in renewables as 2018, but they expect that this year looks set to pose a number of challenges for the renewables sector connected to the COVID-19 pandemic, which has caused issues with supply chains and forced some industries to shut.
In March the Global Wind Energy Council announced in its forecast of continued growth of the wind industry that the next five years would be undoubtedly impacted by the ongoing COVID-19 pandemic due to disruptions to global supply chains.
Ukraine is one of the countries which introduced restrictive quarantine measures to curb the spread of coronavirus. The quarantine was introduced on March 12 and so far is effective until April 24, but may be extended to the middle of May. The quarantine has already affected the work of the integrated power system and the electricity consumption in Ukraine. As reported, the industrial production stopped and the consumption of electricity by the population increased. However, the influence of the quarantine measures on generating renewables power sources already producing is minimal; still the renewable projects under development are put on hold.
Conclusions
In 2019 the competition for the best renewables assets remained intense notwithstanding the regulatory changes and political regime change.
Decision of the policy makers on the reduction of subsidies for renewables in 2019 should have shown the sign of the sector's strength, no longer feeling the need to incentivize investments so generously. However, by removing it support too rapidly it undermined the expediency of number of major projects in the industry.
The economic slowdown in 2020 due to pandemic of coronavirus resulting in cease in work of major construction companies, wind turbines and solar panels producers will have a significant influence on the development of the renewable projects and a number of deals both on Ukrainian and global market.
