Wind Power and M&A: A Moveable Feast

Multi-billion dollar renewable energy enterprises seem to have sprung up full-blown practically overnight, providing investment bankers, venture capitalists and financiers with their latest moveable feast. Wind power projects and companies were among the first to attract serious attention and capital. While solar and biofuels have likewise come to the fore, wind power investment continues to grow at a healthy clip, constrained more by a lack of key materials than by lack of capital, opportunity, industry or even political will.

Take Airtricity Holdings, for instance. Just four years after beginning to develop wind power projects in North America, signed off on a deal to sell the business to German utility E.ON for US$1.4 billion in order to concentrate on its European business. Less than three months later, early this month, management decided its best course of action was to sell that business, for something like €1.83 billion (US$3.59 billion), to Scottish & Southern Energy, which itself recently moved into the #2 spot as a producer and distributor of electricity and natural gas in the U.K.

Airtricity in North America and Europe
Based in Dublin, Airtricity has quickly built up a continent-spanning operation as both a “green” electricity generator and supplier. The company employed close to 400 employees and generated annual revenue of €177 million (US$346.76 million) in 2006.

Prior to selling its North American and European businesses, it was operating 16 wind farms with more than 500 megawatts (MW) installed generating capacity in the Republic of Ireland, Northern Ireland, Scotland and the U.S. Another nine wind farms totaling nearly 600 MW are under construction. In total, its project development pipeline totaled nearly 17,000 MW in terms of generating capacity.

Airtricity North America began getting involved in the development of wind power projects in 2003. The company has offices and employs more than 80 people in Austin, Chicago and Toronto. It is active in nine U.S. states, primarily in Texas and the Northeast, and is developing a pipeline in Canada.

As of year-end 2007, its U.S. wind farms had a total installed capacity of some 210 megawatts (MW), with an additional 880 MW due to come on-line by the end of this year. Looking out over the longer term, the company has projects totaling 1,000 MW of capacity in advanced stages of development across the U.S. and Canada. Another potential 5,000 MW worth of projects are in early stages of development.

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Attractive Takeover Targets
Sizable, established and still fast-growing renewable energy companies such as Airtricity are prime acquisitions for more larger, more established electricity and energy companies, certainly in the E.U. and also in the U.S. Aiming to address twin problems of energy security and climate change, the E.U. government and those of individual member states are setting up to increase the renewable energy requirements they have already imposed. Similarly, the number of states that have passed, or are considering the imposition of renewable power standards (RPS) continues to grow.

With approximately 880 MW gross capacity – a 653 MW net equity ownership - spread across the U.K., Germany, the Nordic region and the Iberian Peninsula, E.ON, based in Düsseldorf, was a major league wind farm operator in its own right even before acquiring Airtricity North America. The majority of its existing capacity is onshore, but it has pioneered off-shore wind projects in the U.K. and Nordic region. Acquiring Airtricity North America fits right into management’s expansion plan, which aims to increase the company’s wind power capacity to 2.6 GW by year-end 2011.

UK Secretary of State for Business, Enterprise and Regulatory Reform John Hutton in November announced a proposition to open up U.K. waters to as much as 33 gigawatts (GW) of offshore wind energy, more than trebling the 8 GW already being planned. Thirty-three gigawatts would be enough to supply electricity demand for every home in the U.K., as well as go a long way towards meeting E.U. targets of generating 20% of energy supply from renewable sources by 2020, Airtricity management – applauding the plan – noted in a media release.

Reason enough, but by no means the sole reason behind fast-growing Scottish & Southern Energy’s decision to acquire Airtricity’s European business. "Seven major public policy developments took place during 2007 alone, all of which point towards a material step-change in the amount of renewable energy that will be required in the future. The range of investment opportunities now available to SSE in renewables will become increasingly important as the world becomes more carbon constrained and the EU becomes more concerned about energy security. Demand for renewable energy is only going to go up,” SSE chief executive Ian Marchant stated in a media release.

"In one step this acquisition moves SSE forward in onshore wind, offshore wind, Ireland, Europe and China and gives added momentum to the increasing scale and broadening scope of SSE’s activities which has been achieved over the past few years.”