The world has seen tremendous disruption in energy supplies the last twenty years. From the Bakken boom to bust, natural gas expansion and the declining use of coal, one trend stands out above them all: the rise of renewable energy.
Renewables are no longer just the province of small solar and wind developers and French fry oil powered VW vans. Investment in global renewables has increased significantly for over a decade and it expected to increase for the foreseeable future.
These trends require a significant rethinking and restructuring our the U.S. energy grid and technologies to enable more efficient and effective transmission of electricity and gas. Falling prices for solar, wind and batteries have made them the main choice for new power capacity. Natural gas and renewable natural gas will continue to grow and replace coal and other sources of thermal power. Bloomberg New Energy Finance is projecting that these changes will take in excess of $64 trillion in energy and transmission infrastructure worldwide.
In the U.S., the incoming Biden administration has pledged to more strongly support renewable energy and energy efficiency technologies and projects, as well as committed to rejoining the Paris Accords. Stronger federal support for renewables in terms of renewable energy requirements, tax credit financing and loan and grant programs will give renewables an added boost.
Rejoining the Paris accords signals that the U.S. administration is concerned about decarbonization. Adopting this approach on a federal level, in additional to the efforts of many states to create carbon pricing mechanisms, will accelerate investment in technologies and projects that reduce and monetize carbon. This is vital as the U.S. power usage is projected to grow significantly, especially in the transportation and industrial sectors. Efforts to expand the use of electrical vehicles and localize renewable power and supply will certainly gain momentum.
Yet big oil isn’t ready to go quietly into that good night quite yet. With trillions of dollars invested worldwide into traditional energy infrastructure, existing energy investors will look for ways to maximize the life of existing assets and participate as a major player in new power and infrastructure development. This is in part driven by strong shareholder activism focusing on environmental, social and governance requirements that is changing now just how big oil looks at its future, but also how companies throughout the supply chain look at reducing energy and carbon.
All of this growth and investment has brought the cleantech industry to the point where the risks from the earlier days have mostly been settled and that is when buyers look for opportunities. Welcome to M&A in clean tech.
Both strategic and financial sponsors have been active in recent years, buying assets and companies that fit within and expand upon existing technologies and infrastructure. These include energy management software, demand response companies, rollups of existing solar and wind developments and electric vehicle charging infrastructure. Financial sponsors have been very active, with existing and new infrastructure funds increasingly competing against impact focused funds, both of which compete against strategies and increase opportunities for potential sellers.
So what is next?
We will likely see a mix of deals involving companies that focus on extending and transitioning the existing infrastructure and companies creating new technologies and infrastructure. This will not be a black and white line, but rather an evolution and many companies will play a role in both opportunities.
Here is a short list of some of the industries that should be well positioned for growth and acquisition in the near future:
- O&M
- Geospatial services
- Substation and electrical services
- Energy management
- Energy efficiency
- Demand response
- Software and service providers
- Residential and commercial and industrial installers
- Beneficial re-use and recycling of waste and carbon
- Testing and analytical services
- Water and wastewater management
- Emissions monitoring, and environmental compliance
Beyond these, companies developing infrastructure assets that focus on impact criteria like decarbonization, beneficial re-use and electrification will be well positioned for success, but likely in a longer time frame given the nature of infrastructure development.
This is an exciting time to be involved with the cleantech and impact industries, especially after many long years where it felt like the world was going the wrong way. We are excited to work with many companies and investors making a real difference today and in the future. If we can help in any way, please contact us.
