An influx of European investors saw the region’s deal activity increase to six times that of the first quarter of 2017 in the second quarter, reaching $845 million.
As in previous quarters, greenfield investment outstripped brownfield investment, and increasing M&A signifies growing investor confidence, said the quarterly EY ‘Power transactions and trends’ report.
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. In July, Egypt raised household electricity prices by 42 per cent in a bid to rationalised subsidies. Furthermore, many governments are also diversifying their energy mix as oil prices fall.
Saudi Arabia has launched a tender to build a 400 MW utility-scale wind power plant, a first for the country. In the wider Mena region, an additional 35 GW of wind capacity is expected to be installed through 2026.
David Lloyd, Middle East Power and Utilities Transactions Leader, EY, says: “The Middle East and Africa continue to offer opportunities for investors looking to diversify their portfolio. As low-risk, high-value projects dry up in developed countries, investors are starting to move into higher-risk regions where they can expect less competition and higher returns.”
Key investment announcements made so far this year include European investors acquiring assets in energy services and power generation across the region. In June, French utility Engie invested $775 million in a 40 per cent stake in Tabreed, a UAE-based company that provides innovative alternatives to traditional air-conditioning. Engie plans to use this acquisition to support expansion into emerging markets within the Middle East.
Furthermore, the European Bank for Reconstruction & Development plans to provide Egypt with $500 million debt facility to build 750 MW of solar photovoltaic (PV) capacity.
The European Bank for Reconstruction & Development will also invest in Jordan with plans to provide $70 million debt to build a 51 MW solar PV power plant. Also investing in Jordan is the International Finance Corporation, with plans to provide $70 million debt to Masdar’s 200 MW Baynouna solar (PV) project.
Middle East market reforms will drive investment
Egypt and Saudi Arabia are expected to remain hot spots for investments regardless of the region’s political and economic constraints. Scatec Solar, a European utility, has agreed to build a 400 MW solar power plant in Egypt. 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. In addition, Marafiq, a Saudi Arabian integrated power and water company, plans to launch an IPO by 2019.
“With sustained deal activity in conventional generation still subdued, P&U transactions are taking on more unpredictable characteristics. Quarterly reports of transactional activity are dominated by the anticipation of asset sales flowing from privatization related structuring and market reform combined with a steady undercurrent of smaller renewables and new energy deals. The continuing low interest rate environment and a surplus of global capital against available opportunities provide a favorable environment and outlook for P&U assets,” concludes David.