UK behind US and India on renewable energy spending

By Fiona Harvey and Lina Saigol
Published: May 26 2009 18:06

The UK is lagging behind on renewable energy investment, with fewer investors willing to take a risk on the market.
Only 13 per cent of energy companies around the world, and 23 per cent of those in the UK, said they would invest in the UK in the next 12 months, according to a global survey of 200 senior energy executives carried out by KPMG, the consultancy.

More popular destinations for renewable energy investment were the US, where 42 per cent of respondents said they planned to invest, and India, which was targeted by nearly a quarter.
But in spite of their current unwillingness to invest in the UK, managers in energy companies in Britain are more bullish on the prospects for renewables than those in other countries, according to the poll findings.
More than eight in 10 UK managers predict significant growth in onshore wind next year, and more than six in 10 predict similar growth in offshore wind, compared with 62 per cent and 38 per cent respectively in the rest of the world.
No UK companies surveyed were planning to put new projects on hold as a result of the current economic turmoil. By contrast, a quarter of respondents globally expected to delay projects.
Half of those polled in the UK forecast increased interest in the low-carbon market from infrastructure funds and other financial operators, compared with slightly more than a third globally.
The prospect of an eventual recovery in renewable energy deals in the UK comes amid a collapse in the volume of deal activity across the board.
There have been just 756 deals with a total value of $54.7bn (£34.4bn) in the UK in the year to date. That compares with 1,542 deals worth $121.1bn for the same period last year, according to data from Dealogic.
Last year, there were four deals in the renewable energy sector in the UK, worth $239m in the year to date.
Some established low-carbon sectors are returning to fashion. Brett Olsher, co-head of global M&A at Deutsche Bank, said: “In the UK, we’ve already seen high levels of M&A activity in the nuclear energy space.
“This is where the development has been, and will continue to be in the medium term. Traditionally, nuclear has been a space that’s been dominated by European investors, and that’s likely to remain unchanged.”
Andy Cox, senior M&A partner at KPMG, said companies were still eager to pick up opportunities in the renewable energy market, but were becoming more discriminating in their choices.
“There are lots of assets around but people are being more choosy,” he said.
For instance, during the renewable energy boom of the past few years, companies were willing to pay hundreds of millions of dollars for renewable energy assets – mainly wind farms – that had not yet been built.
Now, buyers are no longer prepared to shell out for development pipelines, but are looking for operational wind farm assets, according to Mr Cox.
“There is still a gap in price expectation between buyers and sellers and that is why some deals are breaking down,” he added.
Sellers under the impression their uncompleted projects can fetch high prices would have to readjust their expectations sharply, he said.
Mr Cox predicted more consolidation among small wind farm developers, which will find it more difficult to raise cash without onerous lending conditions.
Copyright The Financial Times Limited 2009