Mergers and acquisitions (M&A) have long been a driving force in the energy sector, and this trend is expected to continue in 2023. In the UK energy sector, both acquisition and merger activity have been seen in recent years, with dealmaking picking up in 2022 despite the ongoing energy transition. The energy sector encompasses a wide range of companies involved in the production, transportation, and distribution of energy, including oil and gas, renewable energy, and utilities. As the industry shifts toward clean energy and ESG considerations, companies in the sector are consolidating and investing in energy transition projects. In this context, mergers and acquisitions are key tools for companies to expand their reach, gain access to new energy sources, and achieve economies of scale. In this article, we will explore recent trends and developments in the UK energy sector M&A landscape, including the impact of the energy transition, the role of private equity, and the worth of deals across the sector.

What are mergers and acquisitions when it comes to utility companies?

Mergers and acquisitions (M&A) are common in the utility sector, where energy suppliers and distributors merge to form larger companies. In the UK, there has been a significant amount of M&A activity in the energy industry in recent years, with the trend expected to continue in 2023. Utility companies in particular have been involved in merger and acquisition activity, as companies seek to expand their reach and diversify their energy sources.

The energy transition has played a significant role in driving M&A activity in the utility sector. As the industry moves toward renewable energy and clean energy assets, companies are consolidating to gain economies of scale and access to new technologies. M&A activity in the utility sector also reflects the increasing importance of ESG considerations in the industry, as companies seek to align their business practices with sustainability goals.

These deals can create larger, more diversified companies in the energy space, with a greater presence across the UK and beyond.

In addition to traditional utilities, there has also been M&A activity in midstream and downstream energy companies, such as those involved in gas infrastructure and gas stations. Private equity firms have also been active in the energy sector, seeking opportunities to invest in renewable energy projects and energy infrastructure.

The role of mergers and acquisitions in energy transition

Mergers and acquisitions have been playing a significant role in the energy transition that is taking place globally. The energy sector is experiencing a shift towards renewable and clean energy sources, and the consolidation of companies through mergers and acquisitions is helping to accelerate this transition.

One of the main ways that mergers and acquisitions are driving the energy transition is through the acquisition of renewable energy companies. In recent years, there has been a significant increase in the number of energy mergers and acquisitions involving companies in the renewable energy sector. This trend is expected to continue in 2023, with a growing number of deals being made in the clean energy space.

Mergers and acquisitions are also playing a crucial role in the consolidation of the energy industry, with companies in the oil and gas sector looking to diversify their portfolios and invest in renewable energy sources. This consolidation is helping to reduce the reliance on fossil fuels and accelerate the development of renewable energy projects.

It is also important to look at the acquisition of clean energy assets. Companies are increasingly looking to acquire wind and solar projects to meet their clean energy targets and reduce their carbon footprint. This trend is expected to continue in 2023, with more companies investing in renewable energy projects.

Finally, mergers and acquisitions can also help to address issues related to energy security and greenhouse gas emissions. Consolidation of companies in the energy sector can help to create a more stable supply chain and reduce the dependence on foreign energy sources. The transition to renewable energy sources can also help to reduce greenhouse gas emissions, thereby contributing to the fight against climate change.

Mergers and acquisitions and renewable energy in 2022 and 2023

The renewable energy sector has been gaining momentum in recent years, and this has not gone unnoticed by companies in the energy industry. Mergers and acquisitions have become a popular way for companies to enter the renewable energy space, as well as to increase their existing portfolio of clean energy assets. In the UK, there have been several notable mergers and acquisitions in the renewable energy sector over the past year.

In 2022, UK utility company SSE agreed to acquire the UK and Ireland renewables business of Spanish energy company Acciona. This acquisition includes a portfolio of 329 megawatts (MW) of renewable energy assets, consisting of onshore wind farms and solar photovoltaic projects. This acquisition is a significant step for SSE in achieving its goal of reaching net-zero emissions by 2050.

Another example of a renewable energy merger in the UK is the merger between Scottish offshore wind developer Nova Innovation and Belgian renewable energy company Elicio. This merger creates a new company, named Nova-Elicio, that focuses on the development of offshore wind and tidal energy projects. The merger brings together Nova Innovation’s experience in tidal energy with Elicio’s expertise in offshore wind, creating a strong player in the UK renewable energy sector.

In 2023, the UK’s leading green energy company, Good Energy, announced its acquisition of South Wales-based green energy supplier, Bristol Energy. This acquisition allows Good Energy to expand its reach to more customers in the UK, and it also enables the company to offer a wider range of clean energy products and services.

What about the oil and gas industry?

The oil and gas industry has seen significant consolidation in recent years through mergers and acquisitions (M&A) as companies aim to improve efficiency, reduce costs and gain access to new markets. According to data from S&P Global Market Intelligence, the value of oil and gas M&A transactions in the UK reached $14.3 billion in 2021, up from $4.6 billion in 2020.

One recent example of this trend is the merger between UK oil and gas companies Chrysaor and Premier Oil in 2021, which created the largest independent oil and gas company in the North Sea. The deal was valued at $3 billion and allowed the combined entity to achieve significant cost savings and operate more efficiently in a challenging market.

Another recent example is the acquisition of BP’s stake in the Shearwater oil and gas field by Royal Dutch Shell in 2022 for $325 million. This acquisition allowed Shell to increase its production in the UK North Sea and leverage its existing infrastructure.

While these deals may result in short-term benefits for companies, there are concerns about the long-term implications of continued consolidation in the oil and gas sector. A report by the International Energy Agency found that in order to limit global warming to 1.5 degrees Celsius, there needs to be a significant reduction in the production and consumption of oil and gas.

However, there are signs that some companies are recognizing the need to transition away from fossil fuels and towards cleaner energy sources. In 2022, BP announced plans to acquire a 50% stake in two offshore wind farms in the UK, which is a step towards its goal of becoming a net-zero company by 2050. This acquisition aligns with the broader trend of oil and gas companies investing in renewable energy to diversify their portfolios and adapt to changing market conditions.