The first half of the decade has seen a swift rise in green-house gas (GHG) emissions in Asia. Consequently, China is now the world’s largest emitter of carbon dioxide from the consumption of energy, accounting for over 25% of global emissions. This rapid intensification has also created an active and robust renewable energy market in China and other Asian countries.
According to a report published by Mergermarket, the renewable energy market in the Asia-Pacific is poised for significant increases. In 2014, Asia-Pacific accounted for 23.2% of worldwide deal value in renewables, and in H1 2015 rose further to 36.8%. Major acquisitions of wind, solar and other renewables signal a vigorous and expanding market in the region, one that has seen deal values nearly triple from US$5.4bn in 2012 to US$15.9bn and in 2014. Moreover, through H1 2015, this progression has continued and total deal value has reached US$8.5bn. Confidence is returning to the Asian clean energy market and M&A activity shows no signs of slowing down.
China and India accounted for over 71% of M&A deal value in the region since 2012. As well, recent policy changes signal an openness to increasing these values. India has set ambitious targets for their renewable energy production. By 2022, India plans to expand its renewable power capacity from 34GW to 175GW, 160 of which will come from wind and solar. This goal is predicted to require approximately US$100bn in new investments. Similarly, smaller Southeast Asian countries have also joined the push for clean energy. Thailand, Indonesia and the Philippines each plan to have renewables account for 25% or more of the energy mix in the next decade.
At the time of publishing the above mentioned Mergermarket article, China had committed to expanding wind power capacity from 100GW to 160GW and solar power from 20GW to 70GW. However, since the article was published China has tightened its belt even further and announced what will be the world’s largest cap-and-trade program. While it is unclear how this will affect the solar and wind power targets, it is clear that China appears committed to meeting these goals.
On the industry level, Solar power is poised for exponential growth in Asia-Pacific. While solar has typically been viewed as expensive and inefficient, new innovations have lowered costs and improved efficiency. Additionally, solar power is approaching grid parity in both China and India. Which means these energy sources will soon be as cost efficient as their more pollutant alternatives making them more realistic choices and not merely ‘green alternatives’.
This all suggests a rising market for renewables in Asia-Pacific where a substantial portion of money is raised via Inbound M&A. In fact, the top 5 inbound renewable investment deals of 2015 all took place in the region. While barriers to foreign investment in emerging markets still remain high, governments are loosening their grip. China has opened up new sectors to foreign investment, and India has pledged to help foreign companies overcome barriers in their market. 2016 is shaping up to be a hallmark year for renewable energy M&A in Asia-Pacific.
The author would like to thank Andrew Bigioni, articling student, for his assistance in preparing this legal update.
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