Merger survey finds bubble in renewable energy sector

A survey of renewable energy industry mergers and acquisitions finds a bubble may be developing globally in the sector as bidders compete for assets and send prices up sharply.

Accounting firm KPMG surveyed more than 200 industry executives. Despite the fears that assets might be overvalued, about 60 percent of executives surveyed said they expected to see further consolidation in wind, solar, and biofuels.

Thirty percent said they expect to purchase such a company themselves between now and 2010, the survey said.

Only 27 percent expect the same for hydroelectric companies, followed by 14 percent for tidal power developers. However, hydro firms have been pursued heavily in the past three years, especially by existing power generating firms, the report said.

“A notable shift away from hydroelectricity is currently taking place,” the report said. “So far, it has featured as heavily as other technologies in the search for renewable energy sources: Over the past three years, for example, companies polled for this report were as likely to acquire hydro facilities as solar or wind.

“Going forward, however, hydro is being overlooked in favor of alternatives. Over the next three years, the number expecting to purchase a hydro firm will drop by about 9 percent, while those planning to buy a wind, solar, or biofuel business will go up between 45 percent and 60 percent.”

The report said hydro has long been profitable, but has “little growth potential” due to a lack of viable hydro sites in developed countries, coupled with environmentalist opposition. It said tidal power is a long way from being commercially viable on a large scale.

Fears over climate change have boosted interest in renewable energy and government incentives such as mandates that green sources should account for a portion of total fuel or power markets have helped make the industry more economically viable.

“The overall effect has been to push valuations up to record levels,” KPMG partner Andrew Cox said in the report. “In fact, 50 percent of respondents, and nearly two-thirds in Europe, agreed that there is a real risk of a bubble in the renewable energy sector.”

The report, “Turning up the Heat: An Insight into M&A in the Renewable Energy Sector,” may be obtained from the KPMG Internet site, www.kpmg.co.uk/services/ts/#.

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