Published: 05 July 2016 05 July 2016

Brexit and consolidation

On 23 June the UK population voted to leave the EU and although it is difficult to tell what the full consequences of this are it is clear that the renewables industry in the UK will be affected by it. In the short term not much will change, since running projects will be finished as planned. Also the negotiations of a Brexit will take at least two years and during this period the UK is still a EU member country.

The long-term threats to the UK renewables sector will largely depend on how the government handles the once-obligatory EU climate targets. Also funding might become an issue. The UK is the biggest recipient of allocations of proceeds from the issuance of the European Investment Bank’s (EIB) Climate Awareness Bonds. In 2015 the UK received about 35% of the € 3.6 billion that the EIB allocated that year to renewable energy and energy efficiency projects worldwide. Overall, the EIB lent the UK about € 7.8 billion. Also the UK is one of the bank’s four large shareholders, along with France, Germany and Italy. And, according to EU laws, only member states can be EIB shareholders. It is too early yet to tell whether the UK will still get EIB funding now it will be leaving the EU but it will certainly be part of the negotiations. But however you look at it the outcome of the vote raises serious questions for investor certainty, energy security and future investments in the UK energy infrastructure. Let’s wait and see how things resolve.

Consolidation OEM’s continue

After the GE - Alstom and Nordex–Acciona deals which have now been approved by all authorities Siemens and Gamesa have signed binding agreements to merge their wind power businesses. Under the terms of the deal the combined entity will be 59% owned by Siemens, while Gamesa’s existing shareholders will hold 41%. Siemens will fund a cash payment of €3.75 per share. Once merged, the business will be listed in Spain, and is expected to have an order backlog of about € 20 billion, annual revenues of € 9.3 billion and operating profit of € 839 million. The deal is estimated to lead to annual earnings synergies of roughly € 230 million, before interest and tax. Headquarters for the onshore division will be in Spain and for the offshore division in Germany and Denmark.

The talks started early this year but probably took till now because of Adwen, the 50/50 joint venture for offshore wind of Gamesa and AREVA. This issue has now been resolved by Gamesa and AREVA having signed an amendment to the initial shareholder’s agreement. According to the terms of the amended documentation, AREVA has three months to sell its share in Adwen to Gamesa, or sell 100% of Adwen’s shares to a third-party investor, which may submit a more attractive binding offer during this period. It is no secret that GE also wants to play a dominant role in offshore wind, so option two might be the future scenario for Adwen since GE is already in talks with the French state and several companies about acquiring Adwen, according to GE chief Jeff Immelt, who was interviewed by the French newspaper Le Figaro. GE is currently a small player in offshore wind in Europe and buying Adwen would make it the third biggest group in that market after Siemens and MHI Vestas. At the end of 2015, Siemens had 63.5% of Europe's installed offshore wind capacity, followed by MHI Vestas with 18.5%. Adwen accounted for just 5.7% of installed capacity.

With all these consolidations, the utility scale wind industry market is going to be dominated by just a few big players so the question is will the ‘smaller’ OEM’s survive on their own or will the consolidation continue. And if there is more consolidation, who’s next?

Enjoy reading,

Floris Siteur

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