KBS - Renewable Energy - Market Insight

MARKET INSIGHT - RENEWABLE ENERGY

M&A ACTIVITY CONTINUES TO RISE WITHIN THE UK RENEWABLES SECTOR The UK renewable energy sector is witnessing unprecedented growth and has seen a surge in mergers and acquisitions (M&A), driven by a push for decarbonization, energy security, and the transition to sustainable energy sources. In handling a number of completed deal transactions and continued outreach within this sector , here are some recent trends that we have noted. + INCREASED INVESTMENT There’s a strong appetite for investments in offshore wind, solar, and energy storage, as companies look to expand their portfolios in line with net-zero goals. + STRATEGIC PARTNERSHIPS Many firms are forming strategic alliances to share resources and expertise, particularly in technology development and project financing. + PRIVATE EQUITY INVOLVEMENT Private equity firms are increasingly investing in renewables, seeking stable, long-term returns in the growing energy transition sector. + REGULATORY SUPPORT Government policies and incentives aimed at boosting renewable energy have created a more favourable environment for M&A activities. + CONSOLIDATION AMONGST LARGER PLAYERS Smaller renewable developers are being acquired by larger players to scale operations and enhance their project pipelines + ACQUISITION OF OFFSHORE WIND ASSETS, SOLAR PROJECTS AND ENERGY STORAGE Major energy companies like Ørsted and EDF have been acquiring smaller firms or projects to expand their offshore wind capacity. For example, Ørsted’s acquisition of several smaller UK-based offshore wind projects has solidified its position as a market leader. Companies like NextEra Energy and Canadian Solar have been actively buying solar farms in the UK, capitalising on the growing demand for solar energy solutions, whilst the rise of energy storage as a key component of renewable energy has led to several acquisitions. Notable companies are looking at firms specializing in battery technology and grid solutions.

This sector insight delves into the current state of the UK renewable energy M&A market, spotlighting key transactions, leading players, and notable contributions from KBS Corporate. With growing demand for clean energy solutions, now is the time to explore the opportunities shaping the future of this transformative sector.

CURRENT LANDSCAPE

As of late 2024, the M&A landscape remains vibrant , with ongoing negotiations and new partnerships emerging. Companies are looking not just at traditional renewable assets but also at i nnovative technologies that can support grid stability and energy efficiency . The focus on achieving the UK’s climate goals continues to drive strategic moves within the sector.

In the UK renewables sector, acquirers, investment buyers, and private equity firms have distinct motives, synergies, and strategic interests driving their decisions.

As an investor, the economics of renewable energy are becoming increasingly appealing:

• The cost of solar panels has dropped over 80% since 2010. Solar is now the cheapest source of new electricity in many parts of the world. • The cost of wind power has also fallen by around 50% over the last decade. According to Lazard, a leading financial advisory firm, wind and solar are now the two cheapest sources of new electricity generation in the U.S. • Battery technology. Improvements and cost declines in battery technology have made renewable energy storage possible.

• Government policies, incentives, rebates, and renewable energy targets have helped drive growth in the renewable energy market. Over 150 countries have renewable energy targets and policies in place. • There is increasing recognition that climate change poses huge economic costs and risks. Investing in renewable energy mitigates these costs and risks. A transition to renewable energy could save the global economy trillions of dollars according to some estimates.

TRADE/STRATEGIC ACQUIRERS

MOTIVES

SYNERGIES

STRATEGIC INTERESTS

Market Expansion: Acquirers often seek to expand their market share or enter new geographical markets. Portfolio Diversification: Diversifying their energy portfolios by adding renewable assets reduces reliance on fossil fuels. Access to Technology: Gaining innovative technologies or operational expertise enhances competitiveness.

Operational Efficiencies: Combining resources can lead to cost reductions and improved operational efficiencies. Shared Infrastructure: Utilising existing infrastructure (e.g., grid connections, supply chains) can streamline operations. Cross-selling Opportunities: Companies may leverage their customer base to offer new renewable solutions.

Sustainability Goals: Aligning with corporate sustainability targets enhances reputation and compliance with regulatory frameworks. Regulatory Advantages: Being involved in renewables can offer favourable regulatory treatment and government incentives. Long-term Growth: Investing in renewables is often seen as a path to sustainable long-term growth amid shifting energy trends.

PRIVATE EQUITY

MOTIVES

SYNERGIES

STRATEGIC INTERESTS

High Returns: Private equity firms are driven by the potential for high returns from growth in the renewables sector. Buy-and-Build Strategy: Acquiring platforms to build out a larger portfolio of assets can lead to increased valuations upon exit. Transformational Opportunities: Identifying underperforming assets and driving operational improvements can unlock value.

Scalability: Private equity often looks for opportunities to scale existing operations or enter new markets efficiently. Value Creation: Leveraging operational expertise to enhance asset performance through best practices and efficiencies. Exit Strategies: Creating synergies that enhance the attractiveness of the portfolio for future sales or public offerings.

Market Timing: Investing in renewables is seen as a timely opportunity, given the global shift toward sustainability and energy transition. Access to Growth Capital: Partnering with growth stage companies or those in need of restructuring to capitalize on market opportunities. Innovative Solutions: Investing in firms with innovative technologies or business models aligns with market trends and demand for clean energy. Diversification: Institutions seek to diversify their investment portfolios, particularly in sectors with growth potential. Aligning with Trends: Investing in renewables aligns with broader societal shifts toward sustainability and environmental responsibility.. Regulatory Compliance: Meeting regulatory pressures and investor demands for sustainable practices is increasingly vital. STRATEGIC INTERESTS

ALTERNATIVE/INSTITUTIONAL INVESTMENT

MOTIVES

SYNERGIES

Stable Returns: Renewables often provide predictable cash flows, making them attractive for long term investment strategies. ESG Considerations: Increasingly, institutional investors are prioritizing ESG criteria in their portfolios. Risk Mitigation: Renewable assets can provide a hedge against volatility in traditional energy markets.

Portfolio Balance: Renewables can complement existing investments in traditional energy sectors, balancing risk. Expert Partnerships: Collaborating with experienced operators or developers can enhance project success rates. Cost Savings: Investing in renewables can lead to long-term savings on energy costs for larger portfolios.

M&A STATISTICS PwC’s 2023 Global M&A trends report showed that in total, the UK saw 3,628 deals across 2023 – £46bn worth of UK deals completed in H2 2023 compared to £42bn in H1, bringing the total deal value for the year to £88bn . Energy, Utilities and Resources sectors recorded £18.2bn of M&A activity in 2023 , the highest amount for any individual industry in the UK.

The graph below shows an increase in the deal volume in British power industry M&A Activity since 2021:

M&A activity in the British power industry (by deal volume) - Q4 2021 - Q1 2024

Average Deal Volume Quarterly Deal Volume

Q4 2021

Q1 2022

Q2

Q3

Q4

Q1 2023

Q2

Q3

Q4

Q1 2024

Source: GlobalData Power Intelligence Centre

To reach net zero by 2050, the International Energy Agency (IEA) estimates that global investment in clean energy alone will need to increase from the USD390bn in the first half of 2023 , to USD 1.3tn in 2030 .

In a recent PwC survey, 46% of energy leaders reported they’re planning for acquisition or divestment in the next 12-18 months , to help achieve strategic goals and accelerate investment.

MARKET INSIGHT Further to ongoing deal activity, we have a retained register of active buyers looking for quality opportunities within the renewables sector. The appetite and strategic motives remain extremely buoyant by the promise of growth, sustainability, and strategic alignment with global energy trends.

STRONG GROWTH POTENTIAL Market Expansion: The UK government’s

STABLE REVENUE STREAMS Predictable Cash Flows: Many renewable projects benefit from long-term power purchase agreements (PPAs) or government subsidies, providing stable and predictable revenues. Diverse Revenue Models: Options such as feed-in tariffs and Contracts for Difference (CfD) enhance financial stability. SUSTAINABILITY & ESG ALIGNMENT Growing ESG Focus: Institutional investors and private equity are increasingly prioritizing environmental, social, and governance (ESG) factors, making renewables attractive investments. Reputation Enhancement: Investing in renewables can bolster the reputation of companies as responsible and forward-thinking. STRATEGIC SYNERGIES Portfolio Diversification: Acquirers often seek to diversify their energy portfolios by integrating renewables, reducing exposure to traditional fossil fuel markets. Operational Efficiencies: Merging operations can lead to cost savings and improved efficiencies, enhancing overall performance.

commitment to reaching net-zero emissions by 2050 and substantial investments in renewable energy create a favourable growth environment. Increasing Demand: The rising demand for clean energy solutions from consumers, businesses, and governments drives market opportunities. REGULATORY SUPPORT & INCENTIVES Government Policies: Supportive regulatory frameworks and financial incentives encourage investment in renewables, making it easier for companies to operate profitably. Long-Term Viability: The alignment of government policies with climate goals ensures long-term viability for renewable projects. TECHNOLOGICAL INNOVATION Advancements in Technology: Innovations in solar, wind, and energy storage technologies enhance efficiency and reduce costs, making these investments more attractive. Competitive Advantage: Companies leveraging cutting-edge technology can gain a competitive edge in the market.

FAVOURABLE EXIT OPPORTUNITIES Favourable Exit Opportunities: As the renewables sector matures, there is increasing interest from a range of buyers, including utilities and institutional investors, providing lucrative exit opportunities for private equity and investment buyers. Public Market Potential: Successful renewables companies may be well-positioned for initial public offerings (IPOs), providing significant returns for investors. ENERGY TRANSITION DYNAMICS Shift to Decarbonization: The global energy transition away from fossil fuels toward cleaner energy sources creates a favourable landscape for renewables. Regulatory Pressure: Increasing regulatory pressures on traditional energy sources further amplify the attractiveness of renewables.

SECTOR DEAL ACTIVITY

IMS HEAT PUMPS SOLD TO HOMETREE Renewable energy installer IMS Heat Pumps has been sold to fast-growing residential energy services company, Hometree. Founded in 1997, and with bases in Sheffield and Perth (Scotland), IMS Heat Pumps specialises in the design, installation, commissioning, service and maintenance of ground and air source heat pumps. PROJECT BETTER ENERGY RECEIVES MAJOR INVESTMENT Project Better Energy (PBE) has received major investment from private equity house Freshstream. Founded in 2012, PBE has evolved from a solar solutions specialist to a market leader in the UK’s green energy sector, delivering an extensive range of applications to serve growing residential and commercial demands. KBS DEAL KBS DEAL UNITED LIVING GROUP ACQUIRES MAJOR STEAK IN GTEC AND THORMER United Living Group, the provider of infrastructure, affordable housing, property services, and telecoms, has acquired a majority stake in both GTEC Training Limited, a leading renewables training specialist, and Thormer Solutions Limited, developer of Heatly, a digital tool that makes heat pump system design, surveying and installation easier. GOOD ENERGY COMPLETES ACQUISITION OF JPS RENWABLE ENERGY Clean energy provider Good Energy has announced its acquisition of solar and storage firm JPS Renewable Energy and its subsidiary Trust Solar Wholesale in February 2024. This deal follows Good Energy’s acquisition of solar installation business Wessex EcoEnergy for £2.5 million in June 2023. AGRIVERT ACQUIRES CHILTERN SOLAR Solar panel installer Chiltern Solar Ltd has been sold to environmental and ecological services company Agrivert. Chiltern Solar, based in Chesham, Buckinghamshire, specialises in the design, supply and installation, around London and the home counties, of solar photo voltaic (PV) systems which generate clean and efficient energy for households and businesses. KBS DEAL BEACH TREE INVESTS IN SUSTAINABLE ENERGY FIRST Beech Tree Private Equity invested in Sustainable Energy First, a leading sustainable energy and utilities specialist, serving the UK’s most prominent organisations. Beech Tree’s investment will support Sustainable Energy First’s objective to decarbonise the UK’s business community by 327,000 tonnes CO2e by 2028.

CLEANTECH COMPANY AFECO ACQUIRED BY UNITED LIVING GROUP

KBS DEAL

AFECO/EcoGenR8, a cleantech innovation company that specialises in engineering services and solutions focused on the water, marine and energy sectors has been acquired by United Living Group (ULG), a leading independent infrastructure, construction and property services company.

THINK HIRE RECEIVES YFM INVESTMENT YFM Equity Partners (YFM) announces the completion of a substantial investment into the future growth and innovation of Think Hire, Think Energy Group’s relocatable renewable power business, on behalf of its Buyout Fund II. Think Energy Group develops, manufactures and distributes relocatable, renewable power solutions to clients across the infrastructure and construction sectors, through its subsidiary, Think Hire. MAJORITY STAKE PURCHASED IN SOLAR FAST PARENT Wickes agreed to buy a majority 51% stake in Gas Fast Ltd, the Castleford, England-based parent company of solar installations firm Solar Fast in March 2024. The stake has been bought from the company’s founders, and Founder & Chief Executive Officer David Draper will continue to lead it. Wickes has the option to buy the remaining 49% over the next five years.

KEY ACQUIRERS & INVESTORS