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90% of Energy Companies Seek Tech Bolt-Ons to Tackle Seismic Shift in Energy Markets

Posted: 4th October 2017

Ian McCarlie, Partner, Pinsent Mason LLP– New research reveals consolidation will transform global energy sector
– UK, Germany, China top three destinations for acquisitions

Ninety percent of energy companies are seeking joint ventures with or acquisitions of smart energy technology specialists, according to research by legal firm Pinsent Masons.

A smart energy revolution is underway as global energy suppliers react to a seismic shift in the supply and distribution of electricity and consumer demand says the legal firm.

The report. ‘Hungry For Change – Investing in a smarter energy future’, which surveyed 250 senior executives at energy and energy investment companies, found that 90% of energy companies are actively seeking energy technology bolt-ons.

Pinsent Masons said this step-change is being driven by the rapid change in consumer energy consumption behaviour, shifts in Government policy and a desire to improve security of energy supply.

The findings show that over the next two years investors and energy companies will prioritise smart meters, new methods of harnessing surplus power and in-house development of data analytics technology, while cloud management systems and virtual power plants will see a surge of investment over the next six years.

The research revealed 85% of respondents expect mergers and acquisitions in utilities to increase in the next 12 months with the UK, Germany and China named as the top three target countries for smart energy investment. Forty-six percent of investors and 30% of utilities are investing to access new technology, while 30% of utilities and 24% of investors are looking to invest in smart meter technology in the near term.

In addition, 62% of energy companies say they will not opt for in-house development of smart energy solutions due to high start-up costs and a lack of expertise but instead go down the joint venture and acquisition route.

Edinburgh-based energy partner at Pinsent Masons, Ian McCarlie, said: “Energy companies are grappling with a seismic shift in energy markets and consumption patterns, with widespread distribution and supply market innovation driving energy companies and investors to diversify and adapt their business model.

“Joint ventures and acquisitions are the key to this revolution if utilities are to play a role in the future of the energy industry, maintain security of supply and meet consumer demand in a highly competitive market.

“The transition to a low carbon economy is gathering momentum, presenting significant opportunities for energy service companies as we move towards and into the 2020s, but action must be taken now to avoid being left behind.

“Cloud-based management and virtual power plants are high on the agenda, but this is the destination not the starting point. The groundwork must be laid with investment into smart meters, battery storage and data analytics to build a sustainable, resilient and profitable energy industry.”

Pinsent Masons says recent deals such as Enel’s acquisition of Element Power’s 25 Megawatt (MW) energy storage project in Tynemouth and Eneco’s purchase of a stake in virtual power plant specialist Next Kraftwerke demonstrate a shift in gear towards a more technology-driven utilities sector.

Mr McCarlie added: “A clear strategy for investment into new technology is driven by the need for utilities to evolve their business in light of government policies to decentralise energy supply, improve energy efficiency and continue the transition to the low carbon economy.

“What we’re seeing is energy companies stepping up to the plate and embracing the brave new world of energy supply. At the heart of this revolution, consumer choice and efficiency are of paramount importance. Bolting on technology and pooling resources is the most effective way to respond to new consumer trends and patterns of energy consumption.”

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