Power transactions and trends Global power and utilities mergers and acquisitions review, Q1 2014This EY report examines transactions and market trends in the global power and utilities sector in Q1 2014 and the outlook for utilities, investors and sector participants.

ContentsQ1 2014 activity and outlook .... 2Global snapshot ........................ 4Spotlight ................................... 6Market reform and unbundling Transaction volume and value ... 7Global contacts ......................... 8

Three–year high for Q1 deals After a transformative 2013, when global utilities rebalanced asset portfolios and business models toward new growth areas, Q1 2014 kicked off on a promising note. Deal value for Q1 was 11% higher than for Q1 2013 and 8% higher than for Q1 2012 — the highest quarterly result since Q1 2011.

Quarterly deal activity was driven by privatization and divestments in Europe, merchant asset sales in the US, renewable energy deals in Latin America and market reforms and infrastructure build-out in Africa and Asia Pacific.

Emerging markets continue to receive significant capital inflows from Western Europe and other developed nations, where utilities continue to face slow growth or negative price trends. This movement is boosted by governments keen for capital: countries such as India and Brazil are taking steps to introduce regulatory reforms to create an attractive environment for foreign and private investment. The dual focus on growth and portfolio optimization will spur M&A activity across emerging markets. This is reflected in EY’s recent Capital Confidence Barometer survey report: 72% of acquisition capital will be deployed to emerging markets — both BRIC and non-BRIC. China, the US, India, Brazil and Singapore are the most likely investment targets.

Renewable energy assets registered a strong result for the quarter, showing the increasing importance of the segment in the global generation mix. While Europe remains the hot spot for M&A, emerging nations are likely to witness the next wave of clean energy transactions. We expect financial investors to be first in line for these prized assets.

Market reform and unbundling will form the basis of corporate strategies this year in countries such as India, Mexico, Japan and Greece as they gear up to liberalize their energy markets. This presents M&A opportunities across the value chain. We anticipate an exciting year ahead, with deal activity registering new heights compared with 2013.

Key findings, Q1 2014 • Deal value for Q1 2014 was 11% higher than for Q1 2013 and 8% higher than for Q1 2012 — the highest

quarterly result since Q1 2011• Financial investor deal value doubled, reaching US$14.3b, compared with Q4 2013; average deal size of

US$950m was the highest in last three years. Expect momentum to continue as infrastructure and pension funds look to diversify investment portfolios

• Renewables deal activity reached a three-year high, surpassing generation and T&D deal value and volume. Europe remains the hot spot, with emerging nations catching up fast

• Water and waste treatment segment likely to witness increased M&A activity as utilities gear up to optimize asset portfolios to drive revenue growth

• Europe’s deal value grew 42% over the last quarter, led by large divestments and privatization efforts

Data source and industry scope

The analysis and perspectives in Power transactions and trends are based on global financial releases and Mergermarket data, as well as global engagements conducted by EY member firms from 2012 to 2014. “Power and utilities” covers electricity generation, networks and retail, gas networks and retail, water wholesale, networks and retail organizations, and renewable energy companies. Deal activity and valuations may fluctuate slightly based on the final date of data collection and analysis by EY. For more information, please contact Cara Graham, Director, Global TAS Power & Utilities.

Matt Rennie Global TAS Power & Utilities Leader

Power transactions and trendsGlobal power and utilities mergers and acquisitions reviewQ1 2014

Portfolio optimization and geographic diversification drive global M&A

Q1 2014 activity and outlook — a strong start to 2014Section 1

Source: EY analysis based on Mergermarket data

Americas Europe Asia Pacific

Generation

US$1.4b

US$0.8b

Renewables

US$1.6b

US$2.9b

US$2.1b

Integrated,water and others

US$1.2b

US$0.1b

US$12.7b

T&D

US$2.8b

US$2.6b

US utilities look for growth outside home territories

US M&A activity dropped slightly in Q1 2014 (US$2.8b in Q1 2014 compared with US$4.0b in Q1 2013 and US$3.6b in Q1 2012), but remained strong overall. US utilities are increasingly looking outside their service territories for growth opportunities, driven by moderating load growth, energy efficiency and increasing distributed generation. The focus on expanding regulated businesses to increase stability and predictability of cash flows is driving cross-border transactions. In March 2014, UIL Holdings Corp. announced it would acquire Philadelphia Gas Works for US$1.9b to expand its reach beyond New England, increase the size and scale of UIL’s natural gas operations and create a more geographically diversified energy delivery utility holding company. Energen Corp. agreed to sell its Alabama natural gas utility to the Laclede Group (LG) for US$1.3b to raise money for exploration and production. The transaction is likely to increase net economic earnings per share strongly in the first full year.1

States with favorable regulatory environments and demographics are likely to witness greater investor interest. Dominion Resources and MidAmerican Holdings are reportedly looking for safe and rate-regulated utility assets in the US. Watch the Sunbelt region: according to some commentators, residential electricity sales are likely to run 20% to 25% higher than the national annual average.2

TECO Energy is looking at further acquisitions3 in this region, where it sees demographic and employment growth driving energy demand.

Distressed sales by hybrid utilities continue. Duke Energy, which optimized its asset portfolio toward regulated assets in 2013, announced it would sell 6,600 MW of merchant coal, oil and natural gas-fired units in the Midwest for US$1.5b–US$2.5b.

Financial investors dominate M&A in Europe as they diversify into infrastructure

Q1 2014 saw a significant rise in financial buyer activity, particularly in Western Europe, driven by regulatory and economic uncertainty, the prolonged energy crisis and natural gas supply concerns. Major utilities across the region are transforming themselves into providers of energy services. While some are retrenching, cutting costs and divesting assets, others are moving into new, more profitable international markets.

Continued divestments by major utilities, such as Vattenfall, Dong Energy, E.ON, EDF, Iberdrola and Veolia, contributed the bulk of quarterly transactions — comprising about 64% of total European deal value in Q1 2014. The largest deal for the quarter was RWE AG’s sale of its upstream oil and production business

RWE Dea for US$7.1b to Russia-based energy investment vehicle L1 Energy. Dong Energy sold stakes in its UK wind assets to Canadian, UK and Japanese fund management houses for a cumulative value of US$1.5b in two separate transactions.

Financial investors appear the most logical buyers as these assets provide diversification and bolster portfolios with stable cash flow. Of the total US$17b worth of transactions in Europe in Q1 2014, US$12b has been undertaken by PE firms, infrastructure funds and pension agencies. Four of the more than US$5b transactions in Q1 2014 were carried out by financial investors in Europe, reflecting strong confidence in utility assets. Financial investment houses active in the quarter included Denmark-based Copenhagen Infrastructure Partners and Canada-based global management fund and PE firm Caisse de Depot et Placement du Quebec.

Chinese state-owned utilities and Australian infrastructure funds eye global investments

Asia Pacific companies continued their prolific activity in global M&A P&U markets. China’s State Grid Corporation and Australian infrastructure fund IFM are in pole position to take stakes in CDP Reti, a vehicle that controls gas transport company Snam and power grid operator Terna. Macquarie is reportedly looking to expand its portfolio of power assets and invest in continental Europe, where utilities are closing thousands of megawatts-worth of gas and coal plants. Cheap distressed generation assets are on the shopping list of financial investors, who foresee profits once energy supply and regulatory concerns clear in Europe.

With Asia Pacific countries starting to better define their renewable polices and frameworks, we are seeing increases in renewable energy asset deals in the region. In Q1 2014, the renewable power segment reported a total deal value of US$2.9b, up from US$0.6b in Q4 2013. Hydro and wind power deals in India and China contributed more than 95% of deal value.

1 “Energen to Sell Gas Utility to Laclede for $1.28 Billion,” Bloomberg, 8 April 2014, http://www.bloomberg.com/news/2014-04-07/energen-to-sell-gas-utility-to-laclede-for-1-28- billion.html 2 “In 2014, Fitch sees further utility growth in Sun Belt, declines elsewhere,” SNL, 21 December 2013, http://www.snl.com/interactivex/article.aspx?id=26349339&KPLT=6 3 “TECO would consider additional Sun Belt utility expansion opportunities, CEO says,” SNL, 31 January 2014, http://www.snl.com/interactivex/article.aspx?id=26710580&KPLT=6

Figure 1: Global P&U transaction snapshot

2 Power transactions and trends — Q1 2014

Transaction outlook• Transactions in 2014 will continue to be driven by disruption

and utility transformation. Key factors are shale gas and declining energy demand in the US; market uncertainty and generation mix challenges in Europe; market reforms and infrastructure build-out in Africa; and consolidation and privatization in Asia Pacific.

• In EY’s new Capital Confidence Barometer survey report, 75% of utilities say their growth strategy in the next 12 months will focus on opportunities outside their core markets and products.

• We expect financial investors to remain active buyers. Year 2014 is likely to see a rise in infrastructure fund investments, primarily into renewable energy, pipelines, utilities and transportation assets. US-based PE firm KKR & Co. is seeking US$2b for a second fund to make infrastructure investments globally. Japan’s Government Pension Investment Fund has announced investment of as much as US$2.7b in infrastructure

over the next five years. The California Public Employees’ Retirement System raised its infrastructure target to 3% from 2% in February 2014.

• China and Australia will continue to be key contributors to Asia Pacific M&A. India and the Philippines are likely to be in the next wave of transaction activity in 2014. Foreign investors are lining up to acquire renewable assets in India, where several distressed assets are on sale. Abu Dhabi National Energy Company acquired hydro assets for US$616m in Q1 2014, and Manila Water Co. plans to expand in Southeast Asia, particularly Vietnam, Indonesia and Myanmar.

• Market and regulatory reforms will open growth opportunities for investors. Mexico, Japan, India and Greece are on the verge of liberalizing their energy markets, but investors will need to be cautious when forming investment strategies.

• The emergence of distributed generation, digital transformation and big data and analytics will drive global M&A in 2014 and 2015.

Source: EY analysis based on Mergermarket data

Table 2: Top five global P&U deals in Q1 2014

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

Transactional rationale Segment

28 Mar 14 RWE DEA Germany L1 Energy Russia 7,100 Enables L1 Energy to move its energy investment abroad

Others: O&G exploration

17 Feb 14 TenneT Offshore DolWin3 Beteiligungs GmbH & Co. KG (67% Stake)

Germany Copenhagen Infrastructure Partners (CIP)

Denmark 2,344 In line with CIP’s strategy to invest in global energy/infrastructure assets with stable cash flows

T&D: Electricity

25 Mar 14 Dalkia International (50% Stake)

France Veolia Environnement SA

France 2,059 Strengthens EDF and Veolia’s energy service business in France and internationally; enhances EDF's financial position

Energy services/ management

03 Mar 14 Philadelphia Gas Works

USA UIL Holdings Corporation

USA 1,860 In line with UIL's strategy to create a more geographically diversified utility company

T&D: Gas

25 Mar14 Bord Gais Energy Trading Limited

Ireland Centrica Plc; Brookfield Renewable Energy Partners L.P.; iCON Infrastructure LLP

Bermuda; Canada; UK

1,521 Enables Centrica to enhance vertically integrated business and step into the energy market in Ireland; proceeds will be utilized by the Irish Government to finance job creation and repayment of debts

Integrated

Source: EY analysis based on Mergermarket data

Figure 2: Global P&U deal value and volume, Q1 2012–Q1 2014

Total deal value (US$b) Deal volume

26.0 47.9

19.0 27.6 25.3 33.0 31.7 35.5

28.2

0

30

60

90

120

150

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014

valu

e

Source: EY analysis based on Mergermarket data

Source: EY analysis based on Mergermarket data

Table 1: Global P&U deal activity by segment, Q4 2013–Q1 2014

Deal volume Deal value (US$b)

Q1 2014 Q4 2013 Q1 2014 Q4 2013

Global P&U M&A activity by segment

Total 97 123 28.2 35.5

Generation 13 31 2.2 15.2

T&D 15 20 5.4 9.3

Renewables 43 47 6.6 3.8

Integrated, water and others 26 25 14.0 7.1

3Power transactions and trends — Q1 2014

Global snapshotSection 2

Latin America and South America• Deal activity in the region was extremely strong,

at US$3.1b for the quarter. Brazil dominated deal volume (seven deals from a total of nine in the region) and constituted 50% of deal value.

• Renewables deals led transaction activity in Brazil, particularly in hydro assets. One of the prominent transactions was Companhia Energetica de Minas Gerais’s acquisition of a 12.4% stake in Madeira Energia S.A., the Brazil-based company engaged in hydropower plant operation, for US$354m.

• Current economic weakness in Brazil presents opportunities for cross-border acquisitions and is generating interest among foreign investors. In addition, the Government is looking to introduce reforms to make the environment conducive to investment. Recent announcements that it would provide an extra US$1.7b, and allow the country’s electricity clearing house to seek up to US$3.4b in private financing to support distributors, were well received.

• The largest deal in the region came from Mexico, where energy sector liberalization is currently underway. US-based private equity company Partners Group, together with Fermaca’s management, acquired a majority stake in Fermaca, the Mexico-based energy company, for US$750m. This transaction is Partners’ first investment in the Mexican territory, reflecting interest both in the Mexican economy and demand for natural gas. Watch for more cross-border transactions in the country as reforms take shape.

North America • Deal activity in North America remained strong

at US$3.5b for the quarter, but it was lower than in Q1 2013 and Q1 2012, primarily due to an absence of megadeals in the US utilities market.

• The US dominated regional deal activity, led by UIL Holding’s acquisition of Philadelphia Water Works and multiple water and waste management deals in the quarter.

• Foreign investors, led by Canadian and UK infrastructure funds, continued to make inroads into the US utilities market. This follows from a strong 2013, which saw 11 deals worth US$7.3b by Canadian investors in the US market.

• We expect M&A activity by foreign players to rise in 2014 in the US renewable energy sector, particularly in wind energy. A large amount of wind capacity — more than 20 GW — was installed in the US between 2003 and 2008, and this capacity will be attractive to both US and foreign investors given tax depreciation cycles.

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

03 Mar14 Philadelphia Gas Works

USA UIL Holdings Corporation

USA 1,860

31 Jan 14 Bruce Power L.P. (31.6%)

Canada Borealis Infrastructure Management Inc.

Canada 450

20 Jan 14 Upper Peninsula Power Company

USA Balfour Beatty Infrastructure Partners LLP

UK 299

06 Feb 14 Safe Harbor Water Power Corporation (33.33%)

USA Brookfield Renewable Energy Partners L.P.

Bermuda, Canada

289

20 Feb 14 Stakes in three US-based generation companies

USA MidAmerican Renewables, LLC

USA 194

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

20 Feb 14 Fermaca S.A. de C.V. Mexico Partners Group Holding

Switzerland 750

28 Mar 14 Empresa Electrica Guacolda S.A. (50%)

Chile Confidential Confidential 728

17 Feb 14 Dobreve Energia S.A. Brazil CPFL Energias Renovaveis S.A.

Brazil 706

14 Mar 14 Madeira Energia S.A. (12.4%)

Brazil Companhia Energetica de Minas Gerais

Brazil 354

07 Jan 14 Maracanau Geradora De Energia S.A.; Borborema Energetica S.A.

Brazil Brasilterm Participacoes S.A.

Brazil 177

Table 3: Top 5 North America deals Q1 2014

Table 4: Top 5 Latin America/South America deals Q1 2014

Source: EY analysis based on Mergermarket data

Source: EY analysis based on Mergermarket data

4 Power transactions and trends — Q1 2014

Asia Pacific• Deal activity in the region halved in Q1 2014

compared with Q4 2013, as megadeals remained absent from the region.

• Renewables deals formed the bulk of the activity in the region, contributing US$2.8b (63%) of total regional deal activity. China registered the largest number of deals, hosting seven deals worth US$2.1b, spurred by an increasing push toward clean energy sources in the country, which drove investor confidence higher. Expect more activity in the coming months.

• Privatization in New Zealand and Australia moved ahead. Although not yet approved by the ACCC, AGL Energy signed a definitive agreement to acquire Macquarie Generation from the Government of New South Wales for US$1.4b. The New Zealand Government announced it would sell up to 49% of Genesis Energy; the sale could generate up to US$684.5m.

Europe• Deal activity in Europe centered around major

utilities, such as E.ON, RWE, EDF, Dong Energy and Vattenfall, which continued their divestment programs.

• Cross-border transactions comprised 40% of total deals in the region. Financial investors from Russia, Canada and Denmark were active in acquiring utility assets, diversifying investment portfolios away from government bonds and securities into harder assets.

• We expect increasing transaction activity in the European waste and water treatment segment over 2014. Lower price tags on potential targets this year, combined with cheap debt, are making acquisitions more attractive. Waste recovery and industrial water specialists are attracting greater investor attention, particularly those with the technology to treat water from industries such as oil, natural gas and mining.

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

28 Mar 14 RWE DEA Germany L1 Energy Russia 7,100

17 Feb 14 TenneT Offshore DolWin3 Beteiligungs GmbH & Co. KG (67%)

Germany Copenhagen Infrastructure Partners

Denmark 2,344

25 Mar 14 Dalkia International (50%)

France Veolia Environnement SA

France 2,059

25 Mar 14 Bord Gais Energy Trading Limited

Ireland Centrica Plc; Brookfield Renewable Energy Partners L.P.; iCON Infrastructure LLP

Bermuda, Canada, UK

1,521

31 Jan 14 London Array 1 offshore wind farm (25%)

UK Caisse de Depot et Placement du Quebec

Canada 1,050

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

12 Feb 14 Macquarie Generation

Australia AGL Energy Limited Australia 1,358

14 Feb 14 China National Offshore Oil Corporation (Wind power assets)

China China National Nuclear Corporation

China 660

22 Feb 14 Xinhua Hydroelectric Co Ltd (55% Stake)

China China Nuclear Power Co Ltd

China 650

02 Mar 14 Karcham Wangtoo hydropower project; Baspa II hydropower project

India Abu Dhabi National Energy Company

UAE 616

13 Jan 14 China Hydroelectric Corporation (50.17%)

China CPT Wyndham Holdings Ltd.

China 330

Table 5: Top 5 European deals Q1 2014

Table 6: Top 5 Asia Pacific deals Q1 2014

Source: EY analysis based on Mergermarket data

Source: EY analysis based on Mergermarket data

5Power transactions and trends — Q1 2014

Spotlight: Reforms to drive corporate strategies Section 3

Market reform and unbundling open up avenues for new growth

With wholesale prices declining and business models changing, there’s a renewed focus for utilities, financial houses, equipment suppliers and operations/maintenance companies: namely, moving further up the deal cycle to maintain market share. Benefits from ongoing market reforms in Nigeria, New Zealand, Australia, Turkey, the UK and Bosnia have inspired initial discussions about electricity sector reform in such countries as Rwanda, Tanzania, Ghana, Greece, Mexico and India.

A need to attract private investment to fuel growth in Africa, the Middle East and Latin America, coupled with a need to foster competition, has triggered privatization, unbundling and retail electricity market competition across geographies. The progress of Nigeria’s privatization of electricity generation and distribution has motivated Tanzania to unbundle its state-owned utility Tanesco, attracting interest from private investors in its generation and transmission segment. Rwanda is also planning to separate its Energy Holding Company into electricity and water companies for efficient operations, creating investment opportunities across the value chain.

India, Japan, New Zealand, the Philippines and Australia are breaking up their traditional monopolies. Simultaneously, China has begun to firm up plans to create a market for power generation and sales prices. This will open opportunities for new players to enter competition in the generation segment and reap the benefits of exponential growth in the market. Mexico, Honduras and Puerto Rico have announced concrete plans for unbundling and privatizing the electricity value chain. Qatar, Saudi Arabia and other Middle East countries are following suit, with initial discussions of market reform targeted at investment through IPPs.

The pursuit of reform has become prevalent in the Middle East and Gulf region. The Qatar National Development Strategy for 2011–16 has called for the establishment of an independent regulator for the power and water sectors. The country hopes that establishing a strong regulatory body will enable private participation. The Kingdom of Saudi Arabia, one of the largest Gulf countries, plans to unbundle its vertically integrated electricity company, Saudi Electric Company (SEC), into separate generation, transmission and distribution companies. Further, the country aims to encourage private participation in electricity generation through the IPP model. In Israel, the Government plans to sell partial stakes in its state-owned electric utility, along with stakes in 18 other state-owned enterprises, to reduce its debts.

In contrast, Europe is liberalizing the electricity sector in compliance with mandates attached to financial packages and regional wholesale markets. Greece, Italy and Cyprus have firmed up plans to privatize their electricity assets, following EU mandate and rising debt levels. In the Baltic region, Latvia and Lithuania have initiated liberalization of the electricity retail market in line with the terms of the Nord Pool Spot market. Elsewhere, covenants attached to economic packages from the IMF have led to countries announcing plans to privatize their electricity assets; Romania is one of them.

Several countries across Europe have already progressed with market reform, and foreign investors are entering to capitalize on low valuations. The Governments of Malta and Armenia have offloaded stakes in their power assets, Enemalta Corporation (33%) and Vorotan Complex of HPP CJSC (100%) for US$444m and US$180m, respectively, inviting interest from foreign players such as Shanghai Electric Power Co Ltd (China) and Contour Global Bonaire (US). The UK energy regulator, Ofgem, has passed several orders to provide a level playing field to smaller electricity producers and suppliers in the electricity market. There is speculation that the regulator could recommend breaking up the UK’s ”big six” utilities to enhance competition.One of the big six, SSE Plc, has announced a legal split of its wholesale and retail units: the company plans to sell part of its holdings.

The global stage of market reforms and restructuring opens a host of opportunities for utilities, financial houses and equipment providers. With a general slowdown in conventional coal and gas-fired greenfield power generation projects, equipment and maintenance service providers need to identify the next markets for their products. They are increasingly involved in what would traditionally be regarded as non-core activities, including project development and financing, to secure the markets for their products and services. Utilities are also increasingly able to influence regulation and policy-setting when investing in newly opened markets, providing greater stability for investors. The efficiency that private sector capital and operation bring can provide strong profits for investors in these markets while still delivering the expected benefits to customers and governments.

The success of future investments in these regions depends on identifying the right targets, alliances and partners, as well as understanding the regulatory frameworks and relationships with funding agencies. EY can help investors to identify the right opportunities and targets for investment and acquisition, combining its global reach with local knowledge.

6 Power transactions and trends — Q1 2014

Risk sharing and capital funding drive collaboration between financial investors and utilities

Transaction volume and valueSection 4

Figure 3: Financial vs. corporate buyer deal activity

Source: EY analysis based on Mergermarket data

Generation: deal value reaches two-year low at US$2.2bGeneration deal activity slid significantly across all regions compared with Q4 2013. AGL Energy’s agreement to acquire Macquarie Generation in New South Wales, Australia, for US$1.5b, while still not formally approved by competition authorities, represented the largest deal in the segment. Transmission and distribution: deal value drops to US$5.4b, down from US$9.3b in Q4 2013The segment recorded moderate activity in the quarter, reporting a deal value of US$5.4b from 15 deals. Contributing to the trend of consolidation in the US, UIL Holdings acquired the regulated gas transmission and distribution assets of Philadelphia Gas Works for US$1.9b. In Europe, TenneT Holding signed an agreement with a Denmark-based infrastructure investment company to divest 67% of its stake in its offshore transmission cable project in Germany, currently under construction. Renewables: Deal value US$6.6b, up from US$3.8b in Q4 2013Renewable power continued to lead deal activity, accounting for close to 50% of overall deal volume. Increasing focus on renewables across the US, Europe and Asia-Pacific is translating into greater investor confidence. Segment deal value rose more than 70%, accounting for five >US$500m deals, including a billion-dollar deal during the quarter. Europe continued to lead renewables deal activities in terms of volume. China and India also emerged as key destinations for renewables deal activity, recording transactions worth US$3b.

Integrated, energy services, water and others: Deal value US$14b, up from US$7.1b in Q4 2013The quarter saw six integrated utilities deals, including the US$1.5b acquisition of Ireland-based Bord Gais Energy Trading and US$1.3b worth of transactions in Chile and Russia. The water and waste segment witnessed moderate activity, accounting for 14 deals in the quarter. We expect water activity to continue to grow, with utilities such as Suez Environnement and Veolia aggressively eyeing domestic and foreign assets.

Source: EY analysis based on Mergermarket data*Size of the bubble indicates average deal value

Figure 4: Q1 2014 deals snapshot by segment

Q1 2014 recorded the highest deal activity in the last six months by financial investors, with deal value reaching US$14.3b compared with US$6.6b in Q4 2013. Europe remained the hot spot for M&A, accounting for around 88% of financial deal value. Regulated electricity and gas grid assets remained in focus. Prominent transactions included Copenhagen Infrastructure Partners’ US$2.3b acquisition of a 67% stake in Germany-based offshore cable project TenneT Offshore, and the US$1.5b acquisition of Ireland-based natural gas T&D and renewable energy company Bord Gais Energy Trading Limited by a consortium of Brookfield Renewable Energy Partners L.P., Centrica Plc and iCON Infrastructure. The transactions reflect a growing trend for utilities to collaborate with financial partners.

With subsidies for renewables scaling back across Europe and the US, utilities are under pressure to divest renewables assets. Utilities such as Iberdrola have divested plants as power prices slumped and competition from independent generators increased. For pension funds, the returns on renewable energy plants, backed by contracts, beat those for many government bonds. Ten-year government securities in the US and UK are yielding about 2.6%,

lower than the 6% average yield on wind and solar. Renewable energy deals contributed 54% to the total financial deals in the quarter. Prominent European renewable power deals included Canadian PE firm Caisse de Depot et Placement du Quebec’s US$1b acquisition of a stake in the UK’s London Array offshore wind farm, and the acquisition of UK-based wind farm Westermost Rough for US$400m by UK Green Investment Bank in partnership with Marubeni Corporation.

0

20

40

60

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014

Corporate deal value ($b)Financial deal value ($b) Financial deal volume

Generation T&D Renewables Integrated and others

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

0 10 20 30 40 50 60

Number of deals

Deal

val

ue (U

S$m

)

7Power transactions and trends — Q1 2014

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About EY’s Global Power & Utilities Center In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. EY’s Global Power & Utilities Center brings together a worldwide team of professionals to help you succeed — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant sector issues. Ultimately it enables us to help you meet your goals and compete more effectively.

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EYG no. DX0252 CSG/GSC2014/1352955 ED NoneThis material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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Doing the right deal in power and utilitiesDoing the right deal right can make a power and utility business more competitive and profitable. Clients turn to EY firms’ Transaction Advisory Services professionals for advice and support through the life cycle of a transaction, from early stage to execution and post-deal activities. Whether the transaction involves acquisitions, alliances, joint ventures, sales, divestitures or securitizations, we help

clients do the right deal at the right price. We help to determine the true value of an asset, set up the business and tax structure, optimize their position in the regulated revenue and pricing environments and execute the deal. We combine proven practices and consistent methodologies with fresh thinking, giving the advice our clients need to make informed decisions, potentially reduce risks and achieve successful outcomes.

Cara Graham Director, Global TAS Power & Utilities Brisbane, Australia +61 7 3011 3145 cara.graham@au.ey.com Follow @carajgraham

Matthew Rennie Global TAS Power & Utilities Leader Brisbane, Australia +61 7 3011 3239 matthew.rennie@au.ey.com Follow @MattRennie_EY

JapanKenneth G. Smith TAS Power & Utilities LeaderTokyo, Japan+81 34 582 6663kenneth.smith@jp.ey.com

Asia PacificJulie Hood TAS Power & Utilities LeaderMelbourne, Australia+61 3 8650 7496julie.hood@au.ey.com

Lynn Tho ASEAN TAS Power & Utilities LeaderSingapore+65 6309 6688lynn.tho@sg.ey.com

Alex Zhu TAS Power & Utilities LeaderBeijing, China+86 10 5815 3891alex.zhu@cn.ey.com

EMEIABrunhilde Barnard Africa TAS Power & Utilities LeaderJohannesburg, South Africa+27 11 502 0255brunhilde.barnard@za.ey.com

Remigiusz Chlewicki TAS Power & Utilities LeaderWarszawa, Poland+48 22 557 74 57remigiusz.chlewicki@pl.ey.com

René Coenradie TAS Power & Utilities LeaderRotterdam, Netherlands+31 88 407 8777rene.coenradie@nl.ey.com

Andrea Guerzoni Mediterranean TAS Power & UtilitiesLeaderMilan, Italy+39 0280 669 707 andrea.guerzoni@it.ey.com

David Lloyd Middle East TAS Power & Utilities LeaderRiyadh, Saudi Arabia+966 11 215 9898david.lloyd@sa.ey.com

Björn Gustafsson TAS Power & Utilities LeaderStockholm, Sweden+46 8 52059497bjorn.gustafsson@se.ey.com

Thomas Kästner TAS Power & Utilities LeaderMunich, Germany+49 160 93 917 544thomas.kaestner@de.ey.com

Stéphane Kraft TAS Power & Utilities LeaderParis, France+33 1 55 61 09 28stephane.kraft@fr.ey.com

Tony Ward EMEIA TAS Power & Utilities LeaderLondon, UK+44 121 535 2921tward1@uk.ey.com

Ian Whitlock UKI TAS Power & Utilities LeaderLondon, UK+44 20 7951 0892iwhitlock@uk.ey.com

AmericasDeborah Byers US South West TAS Power & UtilitiesLeaderTexas, USA+1 713 750 8138deborah.byers@ey.com

Joseph Fontana Americas TAS Power & Utilities LeaderNew York, US+1 212 773 3382joseph.fontana@ey.com

Miles Huq US East Central TAS Power & Utilities LeaderMaryland, USA+1 410 783 3735miles.huq@ey.com

Gerard McInnis TAS Power & Utilities LeaderAlberta, Canada+1 403 206 5058gerard.mcInnis@ca.ey.com

Veeral Patel US Mid West TAS Power & Utilities LeaderIllinois, USA+1 312 879 2028veeral.patel@ey.com

Robert Stall US South East TAS Power & Utilities LeaderGeorgia, USA+1 404 817 5474robert.stall@ey.com

Lucio Teixeira South America TAS Power & UtilitiesLeaderSao Paulo, Brazil+55 112 573 3008lucio.teixeira@br.ey.com

Global contacts