Half of energy executives fear renewables bubble – report
London, 15 May: Half of the world’s energy companies believe that there is a “real risk” of a bubble in the renewable technology sector, according to a KPMG report released this week.

Turning up the Heat, a global survey of more than 200 senior executives in the energy sector, reveals that these fears are even more prominent in Europe, where nearly two-thirds of those questioned fear a bubble. Of respondents who had considered but not completed a renewable energy acquisition, 44% cited the seller’s high price expectations as a contributing cause.

These results come on the back of a 47% growth in renewable energy mergers and acquisitions in 2007 to $55.7 billion, the report says. While it states that many deals are “relatively small”, recent major deals include UK-based Scottish and Southern Energy’s $2.2 billion acquisition of Irish Airtricity in February and Franco-Belgian Suez’s $494 million purchase of the majority stake (50.1%) in Compagnie du Vent in November 2007, which valued the French wind generator at more than 50 times its annual revenue.

Another portent of a possible bubble, the report says, is a lack of caution amongst small investors: 66% of the largest companies think a bubble is a possibility, compared to 44% of smaller companies, which are also more likely to incur new debt to finance a deal (45% compared to 24% of larger firms).

While the report notes that some have likened the situation in the renewable energy sector to the dotcom boom, “the industry’s current form is in many ways reliant on the state, and where supply, demand and potential growth depends as much on government policy as technological innovation or traditional market structures." It concludes that: “In a world focused on climate change, these might explain current valuations better than irrational exuberance.”