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On the back of a record year for energy transition investment in 2022, where according to the International Energy Agency over US$1.5 trillion was invested in energy transition assets globally, 2023 was predicted to set another record of over US$1.7 trillion. 

The vast majority of this investment activity is taking place in the US, China and Europe, backed by strong government incentives for new investment in these regions.

The story of the year has been the impact of the Inflation Reduction Act in the US, which contains US$391 billion of US government incentives for energy transition in the US. Just 18 months after the launch of this programme in August 2022, more than US$100 billion of these incentives have already been accessed.

Hilary Lau
Hong Kong

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We continue to see very strong demand from industrial companies around the world, who are drawn by the generous tax breaks for decarbonisation investments, as well as secure and affordable energy supplies. China is the country making the biggest investments in energy transition, with some US$13.7 trillion pledged in the power sector alone to achieve China's net zero 2060 goals and an almost complete domination of the global solar photovoltaic (PV) panel and electric vehicle (EV) battery supply market. These investments are largely carried out by the state with local Chinese participation and we are not seeing many opportunities for foreign investors. 

Europe and the UK continue to stimulate high levels of investment activity as well, via the EU's Green New Deal and the UK's strong industrial decarbonisation and renewable energy policies. There are a wide variety of funding sources available at the EU State level, with targeted dispensations from the EU State Aid regime. 

Still, it is not possible for the EU to grant region-wide tax breaks as the US is doing and we are starting to see intense trade and investment competition between these three most powerful regions of the world. It is all in the name of progress and sustainability though and may well provide the horsepower we need to commercialise the energy transition technologies of the future. In addition, in Australia we have seen a proliferation of ad hoc support schemes and government interventions culminating in the announcement of the A$10 billion Federal Capacity Investment Scheme. 

Notwithstanding these strong government incentives, 2023 was a year of headwinds for the renewable energy industry. The combined forces of inflation, high interest rates and disrupted supply chains has resulted in the economics of many renewable energy projects (particularly offshore wind and large onshore wind) being challenged.

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The considerable heat in the market in the past few years led to intense competition for primary and secondary renewable energy opportunities, underpinned by aggressive modelling assumptions. This has meant that many individual projects have lower than expected rates of return and some of the largest renewable energy companies have had to take major impairments on some of their biggest projects.

Christoph Nawroth
Germany

On the back of this picture, which persisted for the whole of 2023, it is perhaps no surprise that there have not been many significant M&A deals in the energy transition space and we did not witness many headline grabbing deals in 2023. The exceptions were Carrier's €12 billion acquisition of Viessman Climate Solutions, Iberdrola's US$6 billion divestment of its Mexican gas business and Brookfield and EIG’s proposed US$11 billion bid for Origin. The Brookfield bid was ultimately defeated in a dramatic shareholder vote, after the deal had been approved by the Australian Competition and Consumer Commission (ACCC) specifically because of its potential to accelerate the energy transition. 

However, the continued strong support for renewable energy arising from COP28 (where the final agreement released on 12 December included a pledge to triple renewable energy investments by 2030), means that governments will need to step in and step up to ensure that current and future renewable energy investments are viable. This is likely to lead to the renegotiation of underlying project documents to improve underlying economics and the re-tendering of numerous opportunities on improved terms (as we saw with the recent offshore wind auction in the UK). On top of that we can expect to see continued streamlining of planning approvals, acceleration of grid connection applications, revisions of economic regulation and a general build out of network and transmission infrastructure. Once these signals become clear, we can expect the economics of energy transition companies to improve and another wave of M&A activity to take place. Indeed, we closed 2023 with news that Vattenfall had agreed to sell its 4.2GW portfolio of offshore wind assets in the UK to RWE for £963 million. 

The major oil & gas companies are all in healthy financial positions on the back of another year of high commodity prices and all remain committed to the energy transition, albeit with slightly different means of execution. Of the majors, bp, Shell and Total seem more likely to concentrate on renewable energy acquisitions, with Chevron and Exxon showing they are more focused on carbon management of their existing conventional energy businesses. Exxon and Chevron were involved in the two biggest energy M&A deals of the year, with Exxon announcing a US$60 billion acquisition of Pioneer Natural Resources and Chevron announcing a US$53 billion acquisition of Hess, in each case motivated by the US shale assets of these companies. We also saw Eni move for Neptune Energy in a US$5 billion deal and at the time of writing Woodside and Santos have confirmed they are talking about a US$50 billion combination of their businesses. The UK's Harbour Energy has also announced its US$8 billion acquisition of the upstream oil & gas assets of Germany's Wintershall. These deals suggest that that there is plenty of life left in oil & gas and there is likely to be continued consolidation in this sector in 2024.


Key contacts

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Nick Baker

Partner and Global Co-Head of Energy, Melbourne

Nick Baker
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Rebecca Major

Partner, Paris

Rebecca Major
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Lewis McDonald

Global Co-Head of Energy, London

Lewis McDonald
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Anthony Patten

Partner, Head of Energy - Asia, Singapore

Anthony Patten

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