Energy, cleantech investment and M&A outlook

Here he shares his predictions.

The future of energy, cleantech and M&A

Rising interest rates, geopolitical tensions, and shifts in investor sentiment all contributed to relatively subdued energy investment and mergers and acquisitions (M&A) activity in 2023. However, the introduction of new business models and policies, as well as the decline of certain financial structures, may spur further activity.

Global energy markets have been following different paths for some time. Meanwhile, economic headwinds and geopolitical conflicts in major epicenters of global energy production, such as Eastern Europe and the Middle East, are causing wide swings in energy prices and dampening traders’ optimism. In fact, 2023 was an extension of his weakest year for energy-related M&A since 2015.

Meanwhile, falling oil prices, economic pressures, and growing support for achieving net-zero plans have made consolidation among oil and gas producers particularly important catalysts for deal-making in 2023. As business models mature, companies are turning to trading to strengthen their market positions. Several recent transactions worth a total of US$135 billion are clear examples of how major producers are working to secure low-cost reserves. This trend is likely to continue and spread to small and medium-sized markets. Additionally, with the expected exit from more renewables, some investors and traders are shifting their focus back to cheaper energy production.

Among all sectors, the energy and power industry is expected to be particularly bright for M&A, with the number of buy-side and seller-side deal initiations each increasing year over year on the data site, which facilitates approximately 14,000 new deals each year. increased by 25% and 17%. Also, these are opening trades, not announced ones, so they’re a good indicator of what’s going to happen over the next six to nine months.

This activity also reflects increased demand and policy support for the transition from fossil fuels to renewable energy sources. Resolutions at COP28, the annual meeting of world leaders to discuss global climate change issues and net-zero goals, call for transitioning away from fossil fuels, expanding carbon capture, utilization and storage, and increasing renewable energy capacity by 2030. There is a need to triple or double the amount. It aims to improve energy efficiency and introduce a climate loss and damage fund for the most affected countries by 2030. Government measures to strengthen energy security and net zero commitments are also due to be enacted in the UK and are also being discussed in the US and EU.

Data is already showing strong signs of growing climate tech and cleantech venture capital (VC) deal activity in the US. Venture capital deal flow in climate change technology nearly doubled from 2019 to 2021 to more than US$31 billion, more than the previous nine years combined. This trend is likely to continue, but activity will also reflect considerations of VCs considering funding and exit strategies, as well as technological advances and ESG pressures from investors and stakeholders. right.

Of course, the clean and climate technology sectors are not exempt from broader market conditions, and traders across the board are refining their trading strategies to drive long-term value creation. Like other industries, energy special purpose acquisition companies (SPACs) will continue to decline.

Companies will also focus on demonstrating their value to attract new deal opportunities and reinvestment, with energy storage and grid solutions emerging as a top investment area this year. Companies that provide the ability to effectively utilize, store, and distribute the energy they produce are expected to be better positioned to compete with traditional investments such as energy generation and storage. Concerns about the Ukraine-Russia war and the security of non-renewable energy may also prompt further investment in renewable and sustainable energy storage and grid solutions.

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