European energy M&A market likely to be hit by Brexit impact, EY warns

The European investment market for power generation assets is likely to be severely hit by the continuing impacts of the UK’s Brexit vote, ‘Big Four’ consultancy EY has warned.

However clean energy assets backed by long-term power purchase agreements (PPAs) will remain of particular interest due to their ability to provide stable, long-term returns.

The sentiments were raised in EY’s latest power transactions and trends report, updated for Q2 2016.

Within it, the consultancy has warned that until the UK’s energy policy and position in the EU energy market becomes clearer, investors could be put off acquiring utility-scale energy generation assets, particularly those in the UK.

Since the British public voted to leave the European Union on 23 June there has been substantial uncertainty over how the country will engage with continental Europe and the wider European energy market.

The UK is linked to Europe through various interconnectors, and energy is traded with the continent through them. Various reports published prior to the vote discussed the possibility of tariffs being added to any imported energy, a practice which economics consultancy Oxera warned would add £140 million to household bills.  

EY also warned of the “mixed” regulatory support renewables had been afforded across Europe. While France and Italy have backed solar and other clean generators with fresh targets and support frameworks, Germany and the UK in particular had withdrawn support.

The UK has tumbled down EY’s Renewable Energy Country Attractiveness Index (RECAI) in successive quarters and at the last update occupied 11th position.

But while the outlook for renewable generators in general has been unfavourable, EY did however state that investors had been buoyed by the number of assets backed by long-term PPAs, which it said were able to provide stable, long-term returns.

Appetite for securing PPAs with the UK’s operational solar farms has intensified in recent quarters with the wholesale energy price plummeting, driving interest from asset holders into reducing their exposure to such fluctuations.

Asset owners such as Foresight and Bluefield have pursued PPAs after wholesale energy prices dented their net asset values in the last year.