Veteran bankers who have advised mega-deals in oil and gas are starting to take up jobs as advisers of mergers and acquisitions in renewables as the energy industry globally is increasingly focused on growing low-carbon businesses.
The global push toward cleaner energy and net-zero emissions has created a kind of transition dilemma for bankers, too. Some have moved from advising oil and gas firms on multi-billion deals to working with customers on smaller-scale renewables deals.
While the total value of deals in the clean energy sector has jumped over the past few years, it is still just a fraction of the value of the mega-deals in the oil and gas industry. On the other hand, the growing net-zero emissions and ESG trends are promising much more work for bankers in renewables in the coming decades, while the field and scope of work in fossil fuels will narrow, bankers say.
“When you are in traditional oil and gas that field is inevitably going to narrow over time with the move to net zero,” Ralph Ibendahl, Managing Director & Head, EMEA Energy Transition at RBC Capital Markets, told Reuters.
Renewables On The Rise
“If you’re a renewables banker you are going to be busy for the next 30-plus years,” Ibendahl added.
Although Europe has seen a surge in renewable capacity installations in recent years and renewable power in the EU exceeded electricity generated from fossil fuels for the first time in 2020, Europe will still need significant clean energy capacity, Ibendahl said last year.
“Europe needs to potentially quadruple renewable capacity additions between now and 2050 compared to what’s been installed in the last 10 years. That’s going to take a lot of capital,” he noted.
A lot of capital, private investment, and acquisitions of start-ups will shape the renewable energy sector in the coming decades. Forecasts estimate that investments in clean energy need to at least triple if the world has any chance of achieving net-zero emissions.
The volume of mergers and acquisitions (M&A) in the renewables sector jumped last year by more than 11 times compared to five years ago, according to data from Refinitiv quoted by Reuters.
At the same time, the value of all oil and gas deals in the world last year was ten times higher than the value of renewables deals. Oil and gas transactions totaled $290 billion, ten times more than the value of renewables deals, the data showed.
JP Morgan And Citi Top Oil, Gas Financial Advisers List
In 2021, JP Morgan and Citi were the top M&A financial advisers in the oil and gas sector by value and volume, respectively, GlobalData’s Financial Deals Database showed in January. JP Morgan advised on 29 deals worth $81.3 billion—the highest value among all advisers tracked. Meanwhile, Citi led in volume terms, having advised on 30 deals worth $54.2 billion.
In terms of value, Goldman Sachs came second behind JP Morgan with 12 deals worth $57.3 billion, followed by Citi with $54.2 billion, Barclays with 17 deals worth $43.3 billion, and RBC Capital Markets, with 30 deals worth $35 billion.
In volume terms, the leader Citi was followed by RBC Capital Markets, JP Morgan, Jefferies, and Perella Weinberg Partners.
Big Oil Increases Clean Energy Deal Activity
In terms of value, the deals in oil and gas still significantly outweigh the deal value in renewables, but some bankers are preparing for the huge investments and more deals in low-carbon energy, including such undertaken by major oil and gas producing companies.
“While their development dollars are still majority weighted towards traditional energy, big oil and gas companies are spending most of the time thinking about the transition,” Rob Santangelo, Global Co-Head Energy and Infrastructure Investment Banking at Credit Suisse, told Reuters.
Strategic and financial players, including utilities and investment funds, continue to lead the deal activity in the renewables sector, but others such as oil and gas majors, insurance companies, and pension and sovereign wealth funds are entering the market on an accelerated basis, business advisory firm FTI Consulting said in its outlook for U.S. renewable energy M&As for 2022.
“We are seeing a strategic shift by energy majors to allocate more capital to renewable and clean energy technologies, evidenced by landmark announcements of sustainability and clean energy commitments, and the build-out and acquisition of low-carbon assets and businesses,” FTI Consulting said.
In some of the latest such deals, Shell bought Savion LLC, a utility-scale solar and energy storage developer in the United States, and BP acquired AMPLY Power, an EV fleet charging provider in the U.S.
“As energy majors work toward their energy transition and sustainability commitments, expect to see further investments in renewable energy, particularly offshore wind, and more broadly in the energy transition including hydrogen, biofuels, E-mobility, and carbon capture and storage projects,” FTI Consulting says.
By Tsvetana Paraskova for Oilprice.com
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