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Declining investments, lower prices and the uncertain future of government subsidies will result in more consolidation among renewable-energy companies over the next year, according to Ernst & Young LLP.
Mergers and acquisitions in the first quarter of 2012 increased 41 percent worldwide to $21.7 billion from the previous quarter and will continue to grow this year, the New York-based consulting company said in a report today.
Global overcapacity is driving down prices and profit margins in the wind and solar industries, which is spurring consolidation, Ben Warren, Ernst & Young’s energy and environmental finance leader, said in the report.
“The next 12 months are likely to be characterized by further consolidation in the solar and wind supply chain, with a large number of deals expected in Asia,” Warren said.
Much of the deals are driven by companies seeking to control their supply chain and reduce costs, or gain access to new markets, he said.
Funding for new projects fell 30 percent to $24.2 billion from the fourth quarter of 2011 and was down 7 percent from a year earlier, “undermined by wavering political support and continuing lack of liquidity in the project financing market,” Ernst & Young said. The U.S. and several countries in Europe are trimming subsidies for wind and solar energy.
“Access to capital will remain the single biggest differentiator for companies in both the technology and infrastructure markets for the foreseeable future,” Warren said.
The U.S. increased spending on renewable energy 33 percent last year to $55.9 billion over 2010, topping China for the first time since 2008. The Asian nation spent $47.4 billion in 2011, up 1 percent, the report said.
President Barack Obama’s budget proposal for 2013 includes support for a clean-energy standard requiring that 80 percent of the country’s power come from clean sources by 2035. While that may prompt investment, spending is threatened by expiring subsidies.
“Uncertainty over tax-credit renewals and a continued lack of commitment to long-term energy policy” in an election year “exacerbates the boom-bust scenario” in the U.S., according to the report, which includes data compiled by London-based Bloomberg New Energy Finance.
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