European investments drove Mideast energy deals in Q2: EY

An influx of European investors in Middle East and Africa saw deal activity in the region’s power and utilities (P&U) sector increase six times quarter-on-quarter (QoQ) this year to reach $845 million in Q2 2017, consultancy firm Ernst & Young (EY) said in a recent report.

Increasing merger and acquisition (M&A) activity signifies growing investor confidence towards the region, the consultancy said, while noting that greenfield investment, mainly by foreign banks, outstripped brownfield investment.

P&U deals worldwide had a combined value of $30.8 billion in the second quarter, down 32 percent QoQ. Renewables transactions accounted for $6.1 billion in Q2, the consultancy said.

Global deal volume grew from 115 in Q1 2017 to 134 in the second quarter — a 17 percent increase, EY said. Renewable energy deals accounted for nearly half, or 48 percent, of total deal volume in the sector.

“The report shows how renewable energy asset valuations are increasing with demand,” the consultancy said in a statement.

In the Middle East and Africa region, Q2 2017 saw more greenfield renewables projects, mainly in Africa including plans by Bui Power to build a 250 megawatt (MW) solar-hydro plant in Ghana. In another project, France’s Engie partnered with UK-based eleQtra to build a 50 MW wind project in Ghana.

“Across the region, energy reforms remain a prime source of investment opportunities as governments work to increase the appeal of their markets to private capital. Many governments are also diversifying their energy mix as oil prices fall,” EY said.

Saudi Arabia has recently launched a tender to build a 400 MW utility scale wind power plant – a first in the country. Meanwhile, in June, Botswana Power Corp.’s 100 MW solar tender attracted 166 domestic and foreign bidders.

Going forward, market reforms will drive investment in the P&U sector, EY said. Marafiq, a Saudi Arabian integrated power and water company, plans to launch an initial public offering (IPO) by 2019.

Elsewhere, South Africa is planning to remove subsidies from electricity prices by 2019.

In the Arab World, Saudi Arabia and Egypt remain attractive to investors, the consultancy said.

“Saudi Arabia is moving ahead with its plan to develop more than 30 renewables projects by 2027 – 400 MW of wind and 300 MW of solar. The government has shortlisted developers to set up the projects,” the report said.

In Egypt, Scatec Solar, a European utility, has agreed to build a 400 MW solar power plant, it added.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com