This EY report examines transactions and market trends in the global power and utilities sector in Q2 2014 and the outlook for utilities, investors and sector participants.

ContentsQ2 2014 activity and outlook .... 2Global snapshot ........................ 4Spotlight ................................... 6Innovations, technologies and new entrants Transaction volume and value ... 7Global contacts ......................... 8

Deal activity hits four-year high Global mergers and acquisition (M&A) activity in the power and utilities (P&U) sector continues to gather pace, with deal value reaching a four-year high of US$58.1b in Q2 14. The quarter saw 12 transactions exceeding US$1b each, driven largely by US corporate mergers, privatization in Turkey and consolidation in the Russian power generation segment.In Q2, amid low wholesale power prices, diversified utilities in the US looked to expand operations and achieve synergies through mergers. Utilities offered rich premiums for quality assets, as evidenced by the US$12b Exelon/Pepco and US$9b Wisconsin/Integrys Energy mergers. Merchant assets attracted interest from financial investors and pure-play Independent Power Producers (IPPs). Market reform and unbundling are under way in several new geographies as regulators cut inefficiencies and governments raise capital to fund new infrastructure. In the Middle East, countries including Saudi Arabia and Oman are unbundling and privatizing state monopolies to attract private investment. In Australia, both the New South Wales and Queensland Governments are advancing plans to allow private sector investment in regulated grid assets. The easing of Chinese outbound investment rules should see state-owned Chinese utilities joining a large field competing for these network transmission and distribution assets.In Europe, overcapacity and tariff pressures continue to put conventional power generation under pressure, challenging the current business models employed by the sector’s major players. Increased focus on energy services and growth in emerging markets should spur M&A activity in the next six months.As the sector slowly transforms toward a more information-driven service industry, innovations, emerging technologies and new entrants will be key points on boardroom agendas. Look for this trend to gain momentum in mature markets such as the US and Japan as large nontraditional players enter the electricity value chain. We expect large consolidation and sector disruption to drive what promises to be a strong year for P&U transactions globally.

Key findings, Q2 2014 • Deal activity surged on the back of large US corporate mergers, with value doubling from Q1 to reach

US$58.1b and volume increasing 32% to 128 deals.• Strategic buyers featured heavily as they targeted growth and consolidation. Financial buyer activity dipped to

historic lows, reaching just US$4.7b compared to US$14.3 in Q1 14.• Average deal value in Americas reached US$1.4b compared to US$336m in Q1 14. • Americas renewable deal value reached a three-year high, contributing 86% to the total renewable deal value.

Europe dominated the volume as utilities shed nonperforming assets.• Asia-Pacific deal value doubled to reach US$7.9b, fuelled by Australian privatization and Chinese consolidation.

Data source and industry scope

The analysis and perspectives within Power transactions and trends is based on global financial releases and Mergermarket data, as well as global engagements conducted by EY member firms over the period 2012 to 2014. It provides an up-to-date assessment of outcomes and trends in the global utilities industry. “Power and utilities” covers electricity generation, networks and retail, gas networks and retail, and water wholesale, networks and retail organizations. It also includes renewable energy companies. Deal activity and valuations may fluctuate slightly based on the final date of data collection and analysis conducted by EY. For more information on the methodology employed in the preparation of this report, please contact Cara Graham, Director, Global TAS Power & Utilities.

Matt RennieGlobal Transaction Advisory Services Power & Utilities Leader

Power transactions and trendsGlobal power and utilities mergers and acquisitions reviewQ2 2014

Activity driven by US consolidation and privatization in Europe and Asia-Pacific

Q2 2014 activity and outlook — Megadeals dominate Section 1

Source: EY analysis based on Mergermarket data

Americas Europe Asia-Pacific

Generation Renewables

US$5.4b

US$0.3b

US$0.6b

US$20.5b

US$4.8b

US$1.6b

US$2.5b

US$1.1b

US$7.5b

Integrated,water and others

US$9.4b

US$1.7b

US$2.7b

T&D

Renewed focus on acquiring regulated assets brings megamergers to North America

Q2 2014 saw US P&U deal activity surge, driven by megadeals in the sector. Deal value increased by around 10 times compared to Q1 14 to reach a total of US$29.7b for the quarter. As natural gas prices remain volatile and increased energy efficiency shrinks utilities’ revenues, investors are turning to M&A to both drive growth and achieve financial and operational efficiencies. Wisconsin Energy Corporation became the latest utility to seek growth through consolidation with a US$9.1b acquisition of Integrys Energy Group. Post-merger, Wisconsin Energy’s asset base will increase by around 70%, while profit is likely to double to US$1.4b a year from around US$700m currently.1 The deal followed Exelon Corp.’s announcement to acquire Pepco Holdings for US$12b, the biggest deal in the last three years. The transaction is likely to weight Exelon’s business profile toward a somewhat more stable regulated asset business (moving regulated earnings post-merger to around 60% to 65% of total earnings compared to 55% last year).

The high premium2 involved in both deals (17% and 20% for Integrys and Pepco, respectively) reflects an increasing trend for diversified utilities to reposition themselves as regulated businesses in order to achieve greater earnings stability, in an environment where the Federal Reserve has held benchmark interest rates near zero. It is worth noting that Cleco Corp., a Louisiana-based regulated power provider, recently received acquisition bids by CenterPoint Energy and Borealis Infrastructure, a unit of the Ontario Municipal Employees Retirement System. The utility is currently evaluating the bid proposals3 — look for that transaction in our Q3 report.

A desire for a stronger generation portfolio fuels appetite of US IPPs

With no wholesale price improvements in sight, utilities with merchant assets, especially in the Midwest, are increasingly reviewing their options. The quarter saw both PPL Corp. and American Electric Power (AEP) announce large merchant asset divestments, with PPL Corp. declaring plans to spin off its competitive energy business to join forces with Riverstone’s generation portfolio in a new publicly traded corporation called Talen Energy Corp. Post-completion, PPL will rapidly transition from deriving 73% of its revenue from merchant energy business operations (in 2010) to being 100% rate-regulated. AEP cited volatile returns in the challenging competitive markets of the Midwest as the reason for selling 8,700 MW of merchant capacity by year-end.

We expect these assets to attract strong interest from pure-play IPPs that are keen to grow their generation capacity with the expectation that power prices will pick up in the long term. In April 2014, Dynegy expressed interest in using M&A to expand and add

more than 7,000 MW of capacity, preferably via assets in the PJM Interconnection region. We understand that Dynegy is competing for Duke Energy’s Midwest assets against other investment and private equity firms, including Blackstone Group LP, Riverstone Holdings LLC, Energy Investors Funds and Energy Capital Partners LLC. Despite this competition, we expect valuations to reflect stagnant energy demand and depressed power prices, putting long-term buyers in a position of relative strength.

Governments push privatization programs

Governments across the globe are looking to invest in growth infrastructure but must first strengthen their balance sheets. This is translating into an increased movement toward asset sales in the P&U sector. In Australia, the New South Wales (NSW) Government is following up recent sales of some generation assets by considering the sale of transmission and distribution assets that are tipped to raise as much as US$19b. The proposal follows the move of a neighboring state, Queensland, to seek private investment in three state-owned power businesses: Powerlink, Energex Ltd. and Ergon Energy Corp., together valued at about AU$28b.4 Both the Queensland and NSW sale processes are expected to commence early in 2015, with considerable preparation work to be undertaken in the remainder of 2014.

In the European Union, difficult economic conditions have seen several state-owned assets offered for sale in the last two years. Greece recently announced the sale of a 66% stake in power grid operator ADMIE, prompted by the country’s plans to invest €2.5b in grid extensions and new connections to neighboring countries such as Italy. Already strong interest has been received from Chinese, Italian and Belgian grid operators. Greece may also consider privatizing natural gas retailer DEPA and water companies Thessaloniki (EYATH) and Athens (EYDAP), although plans to privatize the public water companies have been put on hold following a State Council ruling that water should remain under state control. The decision may create uncertainty around these sector reforms.

1. “Wisconsin Energy agrees to buy Integrys for US$5.7 Billion,” Bloomberg, www.bloomberg.com/news/2014-06-23/wisconsin-energy-to-buy-integrys-energy-for-9-1-billion.html, 24 June 2014.2. Premium offered on the closing share price last day before the merger.3. “Unsolicited bid puts Cleco on the block,” The Deal Pipeline, www.thedeal.com/content/energy/unsolicited-bid-puts-cleco-on-the-block.php, 19 June 2014.

4. “Australian state plans power grid privatization,” The Wall Street Journal, http://online.wsj.com/articles/australian-state-plans-power-grid-privatization-1402382297, 10 June 2014.

Figure 1: Global P&U transaction snapshot

2 Power transactions and trends — Q2 2014

Transaction outlook• Transactions are likely to remain strong over the next

six months. US cross-state mergers and the Middle East privatizations will drive values up, while volumes will be boosted by asset-level renewable transactions in Europe and generation asset sales in the US and Asia-Pacific. We expect privatization activity in Australia to get 2015 off to a strong start.

• Large diversified utilities in the US will bring more billion-dollar-plus transactions as pressure grows to consolidate. We see the Midwest and the Northeast regions as ripe for consolidation due to the presence of a larger group of small- to mid-cap companies with smaller franchises.

• Expect divestments to remain the key driver of European M&A activity. GDF Suez plans to sell a major stake in its Australian electricity generation and retail business, while Italian state lender Cassa Depositi e Prestiti (CDP) is looking to divest up to 49% of CDP Reti, the vehicle that currently controls gas grid Snam and will soon control power grid Terna. Watch for Chinese and Australian investors to be in the market for these prized regulated assets.

• Reforms in the Chinese utilities’ sector are creating short-term investment opportunities. The State Grid Corp. of China has opened two of its business sectors (distributed power grids and electric vehicle charging equipment) to new investors, including private and non-state companies. Estimated market value of both sectors is around US$32b.

• ►Market and regulatory reforms in the Middle East are likely to open new investment opportunities. Saudi Arabia is considering splitting state-owned Saudi Electricity Co. into four independent power-generation companies, offering as much as a 25% stake in each of the companies to international investors. Meanwhile, Oman-based state-owned utility Electricity Holding Company (EHC) initiated a feasibility study for the privatization of Muscat Electricity Distribution Company (MEDC), a subsidiary of EHC. Keep an eye on this region as it transforms its electricity sector to meet growing demand.

• ►Long-term infrastructure investment needs in the African region continue to grow. After establishing a US$1b sovereign wealth fund to ramp up investment in power supply, Nigeria announced in June that it would amend investment rules to channel more of the country’s pension funds (about US$26b) into corporate bonds. Significant opportunities exist for foreign investors looking to enter the region.

Source: EY analysis based on Mergermarket data

Table 2: Top five global P&U deals in Q2 2014

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

Transactional rationale Segment

30 Apr 14 Pepco Holdings Inc. US Exelon Corporation US 12,186 Enables Exelon to expand its regulated operations

T&D

23 Jun 14 Integrys Energy Group, Inc.

US Wisconsin Energy Corporation

US 9,037 Makes Wisconsin Energy the leading electric and gas utility company in the Midwest

Integrated

1 May 14 AltaLink LP Canada Berkshire Hathaway Energy (BHE)

US 5,516 Enables BHE to establish its footprints in Alberta’s transmission infrastructure

T&D

30 May 14 Envestra Ltd. (82.54% stake)

Australia CK ENV Investments China 3,741 Helps CKI to enhance its position in the Australian T&D industry

T&D

18 Apr 14 Yenikoy Yatagan Electrik Uretim ve Ticaret AS; Kemerkoy Elektrik Uretim Ve Tic.AS

Turkey IC Ictas Enerji Turkey 2,670 Part of Government of Turkey’s privatization program

Generation

Source: EY analysis based on Mergermarket data

Figure 2: Global P&U deal value and volume, Q2 2012–Q2 2014

Source: EY analysis based on Mergermarket data

Table 1: Global P&U deal activity by segment, Q1 2014–Q2 2014

Deal volume Deal value (US$b)

Q2 2014 Q1 2014 Q2 2014 Q1 2014

Global P&U M&A activity by segment

Total 128 97 58.1 28.2

Generation 31 13 11.1 2.2

T&D 25 15 26.9 5.4

Renewables 47 43 6.3 6.6

Integrated, water and others 25 26 13.8 14.0Total deal value (US$b) Deal volume

Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 20140

50

100

150

3Power transactions and trends — Q2 2014

Global snapshotSection 2

Latin and South America• Deal value of US$2.9b was in line with the region’s

Q1 14 result of US$3.1b. But, in contrast to Brazil’s dominance of last quarter’s deals, activity in Q2 was largely driven by Chile, Peru and Colombia, which collectively contributed 86% of total deal value.

• The growing importance of natural gas saw domestic utilities focused on gas transmission and distribution assets expand their market share. Colombia-based Empresa de Energia de Bogota’s acquisition of a 31.92% stake in gas transportation company Transportadora de Gas Internacional SA for US$880m was the largest of these deals.

• Renewable energy transactions, primarily in Brazil, made up more than half the regional deal volume (58%). The desire to consolidate was behind a number of small asset level transactions in the country’s wind energy sector.

• As governments incentivize private and foreign investment, particularly in the renewables energy sector, cross-border M&A opportunities are appearing. Expect European utilities to dominate the buyer community.

North America • Deal activity in North America hit a five-year

high in Q2 14, reaching US$35.5b (compared to Q1 2014’s US$6.4b), due mostly to US megamergers.

• The US contributed 79% to the total Americas deal value in the quarter, driven largely by six transactions exceeding US$1b.

• NRG Energy Yield’s US$2.5b purchase of Terra-Gen Power LLC’s wind energy assets furthers its strategy around achieving sustainable dividend growth and investment in renewables. The acquisition takes the combined wind portfolio owned by NRG Yield and NRG Energy to 2,839 MW.

• Berkshire Hathaway Energy (BHE) continued to make investments in regulated T&D assets, acquiring Canada-based AltaLink, LP from SNC-Lavalin Group Inc. for US$5.5b in a move aimed at establishing BHE’s footprint in Alberta’s transmission infrastructure sector. We expect the company to retain this acquisitive strategy with a focus on capital-intensive businesses, including energy (particularly regulated assets and renewables) and transportation.

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

30 Apr 14 Pepco Holdings Inc US Exelon Corporation US 12,186

23 Jun 14 Integrys Energy Group, Inc.

US Wisconsin Energy Corporation

US 9,037

1 May 14 AltaLink, LP Canada Berkshire Hathaway Energy

US 5,516

4 Jun 14 Terra-Gen Power, LLC (Alta Wind facility)

US NRG Yield, Inc. US 2,470

7 Apr 14 Alabama Gas Corporation

US The Laclede Group Inc.

US 1,600

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

4 Apr 14 Transportadora de Gas Internacional SA ESP (31.92% stake)

Colombia Empresa de Energia de Bogota SA ESP

Colombia 880

30 Apr 14 Generandes Peru SA (39.01% stake)

Peru Enersis SA Chile 413

16 May 14 Bertin Energia (two thermoelectric generators in northeastern Brazil)

Brazil Bolognesi Empreendimentos Ltda.

Brazil 317

22 Apr 14 Inversiones GasAtacama Holding Limitada (50%)

Chile Empresa Nacional de Electricidad SA

Chile 309

21 Apr 14 Energia Sierra Juarez (50% stake)

Mexico InterGen NV US 150

Table 3: Top five North America deals, Q2 2014

Table 4: Top five Latin America/South America deals, Q2 2014

Source: EY analysis based on Mergermarket data

Source: EY analysis based on Mergermarket data

4 Power transactions and trends — Q2 2014

Asia-Pacific• After a significant drop in the previous quarter,

deal activity spiked in Q2. Deal volume climbed to 38, up from 21 in Q1 2014, while value doubled to reach US$7.9b.

• Hong Kong-based Cheung Kong Group’s US$3.7b acquisition of gas distributor Envestra was the quarter’s largest deal. The move looks set to strengthen CKI’s existing regulated assets in Australia, including 51% stakes in South Australia’s SA Power Networks and Victoria’s CitiPower and Powercor.

• Australia’s New South Wales (NSW) state Government has invited bids for two power stations currently owned by Delta Electricity and worth about US$931m. In June, the NSW Government also sold renewable energy supplier Green State Power.

• Domestic consolidation in China continued and the country hosted 51% of the regions total number of Q2 deals. Privatization reforms have seen the Government announce that 80 national projects, spanning energy, information and infrastructure, will be open to private investors. It will be challenging for foreign investors to compete with domestic buyers — alliances with local players offer the best chance of success.

• We expect Indian M&A to increase, as local energy producers face pressure from lenders to sell off assets and reduce debt. Utilities including Lanco Infratech, Jaypee Power Ventures, Sesa Sterlite and GMR Infrastructure have approached NTPC, the state-run electricity generation company, with offers to sell distressed power plants.

Europe• Deal activity in Europe dipped as divestments

declined over the quarter. While volume remained steady, value dropped 29% to reach US$12.4b compared to US$17.4b in Q1 2014.

• Turkey’s privatization program gained momentum, seeing generation asset deals of US$4b in the quarter. Consortiums of local bidders and conglomerates dominated the field of buyers.

• We finally saw Russian power plant sales come to market in Q2. The transactions followed KES Holding’s strategy to consolidate its regional heat and electricity generating companies under one umbrella and simplify its structure. Volzhskaya TGK is consolidating TGK-9, TGK-5, TGK-6, Otenburg TGK and other regional power generation assets for a combined value of US$4b.

• Norway-based Fortum completed the divestment of its Norwegian electricity distribution business for US$469m. Expect to see more divestments over the coming months, with Verbund AG, Iberdrola, Enel, EDF and GDF Suez all looking to identify non-core assets that could help raise capital needed to invest in growth markets and other regulated operations.

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

18 Apr 14 Turkish thermal power plants

Turkey IC Ictas Enerji Turkey 2,670

19 May 14 TGK-9 OAO Russia Volzhskaya TGK OAO Russia 1,844

19 Jun 14 Energeticky a Prumyslovy Holding, a.s. (40% stake)

Czech Republic

Energeticky a Prumyslovy Holding,5 a.s.

Czech Republic 1,498

12 Jun 14 Yatagan Termik Santrali

Turkey Elsan Elektrik Gerecleri San. & Tic.

Turkey 1,091

17 Jun 14 Central Area Transmission System (62.78% stake)

UK Antin Infrastructure Partners, S.A.S

France 953

Table 5: Top five European deals, Q2 2014

Source: EY analysis based on Mergermarket data

Source: EY analysis based on Mergermarket data

Announcement date

Target Target country/territory

Bidder Bidder country/territory

Enterprise value (US$m)

30 May 14 Envestra Ltd. (82.54% stake)

Australia CK ENV Investments Pty Ltd

China 3,741

2 Jun 14 China Everbright Water Investments Limited

China Hankore Environment Tech Group Limited (fka Bio-Treat Technology)

China 930

16 May 14 Companhia de Electricidade de Macau, SA (37.98% stake)

China Nam Kwong Development (H.K.) Limited

China 612

25 Jun 14 Masinloc Power Partners Co. Ltd. (40.95% stake)

Philippines Electricity Generating Plc

Thailand 453

05 Jun 14 Tongyang Power Inc. South Korea

POSCO Energy South Korea 391

Table 6: Top five Asia-Pacific deals, Q2 2014

5. This transaction involved a share buy-back whereby the shares were acquired directly by Energeticky a Prumyslovy Holding (EPH), and then cancelled, resulting in a change of ownership structure with Křetínský and Patrik Tkáč controlling 37 per cent each and taking joint control of EPH. The remaining shares were retained by J&T’s private equity structures.

5Power transactions and trends — Q2 2014

Spotlight: Innovations, technologies and new entrants Section 3

New players mean utilities must reinvent themselves to compete

The global P&U sector is in the midst of a profound transformation. Market and regulatory reforms are creating favorable conditions for the onset of new competition across the value chain while distributed generation and information technologies are poised to bring major disruptions to the sector.

The retail energy sector is witnessing a particularly radical transformation. Customers are generating their own power, new players are entering the market and other, more innovative industries are raising the bar for customer service. Driven by demands to reduce spiraling energy bills, governments in most developed nations are opening up the retail segment to new nontraditional competitors that are changing the game forever. Technology companies, in particular, are moving in on the energy sector in a bid to capitalize on new retail energy opportunities. Notable examples include Samsung’s Smart Home range of appliances controlled by mobile phones and watches and Google’s purchase of Nest Labs Inc. Apple is reportedly working on a software platform that will turn the iPhone into a remote control for lights, security systems and other appliances.

Google is also a leading example of how some major corporate customers are beginning to generate their own electricity. In an initiative aimed at “greening” its energy supplies, the tech giant has invested more than US$1.4b over the past three years to generate approximately 2 GW of wind and solar capacity.

The impact of new, nontraditional players is particularly noticeable in mature markets, where energy efficiency, smart meters, and smart homes are revolutionizing the way energy is consumed. In the US, we are seeing multiple partnerships between energy retailers and telecom and cable companies. Examples include Comcast Corp.’s pilot project to bundle electricity with its cable packages and AT&T Inc.’s entrance into the smart thermostat business. These win-win collaborations allow telecoms to diversify revenue streams while energy retailers gain access to huge numbers of residential and commercial consumers. The deregulation of the electricity sector in 17 US states and the District of Columbia has allowed end-use customers to choose their own electricity suppliers and ushered in a range of new retail electric providers (REPs), including traditional large commercial and industrial (C&I) focused firms, as well as smaller, less well-known “simple solution” players.

In Japan, market reform is seeing several unconventional players, such as paper mill manufacturers and telecom players, entering the electricity value chain. In early 2014, telecom/internet company SoftBank put plans in place to start selling power generated from its renewable energy sources to corporate customers. By 2016 — when liberalization of the power market will

be complete — SoftBank will also sell power to individual customers. Besides SoftBank, companies such as trading houses Mitsui & Co., Marubeni Corp., Toyota Motor Corp.’s Toyota Turbine and Systems, and Oji Paper are eyeing potential energy investments. As of 9 June 2014, Japan’s registered power producers and suppliers (PPS) numbered 244, up from about 100 in September 2013. Elsewhere, other examples of new entrants into the supply business include Hungary’s Magyar Telekom that has begun selling gas and electricity to residential and business customers and the UK’s Marks & Spencer, which has teamed up with SSE, one of the country’s big six energy firms, to offer energy packages.

As energy efficiency continues to reshape consumption patterns and energy storage and demand management become more important, more aggregators and energy service companies (ESCOs) are likely to emerge. Rising energy bills and pressure to make the sector competitive will continue to reduce the barriers for new players to enter the electricity value chain. While this presents a significant challenge for traditional utilities, companies prepared to innovate and focus on new partnerships/alliances are likely to lead the transformation.

Implications for utilities: Are utilities prepared to compete?Disruptions in the utility value chain present a huge challenge to traditional utilities at a time when they face a slump in returns and tight balance sheets. Some big utilities are meeting the challenge head-on by offering customers the services they demand. For example, E.ON has partnered with rooftop solar developer Sungevity to sell co-branded panels to customers in the Netherlands. In the UK, Npower (a subsidiary of RWE) has teamed up with Nest to offer customers a thermostat for £99 (instead of £279) if they lock in gas and electricity prices at current rates until 2017. Similarly, British Gas, a subsidiary of Centrica, recently launched Hive Active Heating, which allows customers to control their heating and hot water remotely from a smartphone, tablet or SMS, or via a website. We are also seeing utilities acquire energy services firms in a bid to add more customers. GDF Suez’s US$335m acquisition of US-based technology firm Ecova, and E.ON’s acquisition of Matrix Energy solutions and Orcan Energy reflects this trend. In the US, NRG has moved to seize the opportunities of distributed renewables, acquiring Roof Diagnostics Solar, a company engaged in residential and commercial solar panel installations.The message for energy retailers is clear: reinvent and begin the transition toward new downstream business models. It’s time to shift from being an energy supplier and become an information-driven, value-adding energy service provider.

6 Power transactions and trends — Q2 2014

Strategic buyers take the lead while financial buyer deal activity shrinks

Transaction volume and valueSection 4

Source: EY analysis based on Mergermarket data.Note: size of the bubble indicates average deal value.

Deal activity spiked in Q2 14, with deal value and volume rising to US$58.1b and 128, respectively. Corporate deals dominated the deal activity (79% of total volume and 92% of total value), driven by US-based utilities seeking to consolidate their regulated portfolio as merchant power prices stay low. While financial investors contributed to just over 8% of deal value in the quarter, compared to 50% in Q1 14, we expect the figure to increase again going forward. Several generation assets are expected to hit the market in the coming months, driven by depressed power prices in the US, low wholesale prices in Europe and fuel supply issues in countries such as India. These assets will be highly attractive to infrastructure funds and PE firms as they look for higher returns.

More than 50% of deals done by financial investors took place in Europe as utilities continued to divest assets, particularly those in the renewables sector which has been hit by cuts to government subsidies. In North America, the acquisition of Calpine Corporation’s six power plants by financial advisory firm LS Power Equity Advisors (US$1.57b) was the lone billion-dollar deal by a financial

investor. In contrast, strategic buyers such as Exelon, Wisconsin Energy and NRG, contributed six billion-dollar-plus deals in the quarter. We expect financial and strategic buyers (primarily IPPs) to compete for merchant assets in the US, as they foresee an increase in gas prices to generate significant revenue in the long term.

Figure 3: Financial vs. corporate buyer deal activity

Source: EY analysis based on Mergermarket data

Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

Financial deal value (US$b)Corporate deal value (US$b) Financial deal volume

0

20

40

60

Segment analysisConsolidation and privatization drive high-value deals in generation and T&DGeneration: deal value bounces back to US$11.1b after a two-year low in Q1After a slow Q1 14, the segment registered four transactions of over US$1 billion, led by the privatization of Turkish generation assets and consolidation in the Russian power sector. Together, these two countries contributed 66% to the total segment deal value. Merchant asset deals in the US generated seven deals in the quarter for a cumulative worth of US$1.7b. Expect more sales of gas-fired generation assets as rising renewables and low wholesale prices increase pressure on European utilities. Transmission and distribution: deal value rose to a three-year high of US$26.9bThe spike in deal value was primarily driven by large US-based integrated utilities looking to expand their regulated portfolio and increase the stability of their cash flow. Prominent transactions included Pepco Holdings’ US$12.2b merger with Exelon Corp. and Laclede Group’s US$1.6b acquisition of Alabama Gas Corp. Europe had the biggest deal volume, with 12 of the 25 T&D transactions. Eastern Europe hosted most deals as companies expand gas infrastructure to increase revenue streams. Renewables: deal value fell marginally to US$6.3b from US$6.6b in Q1 14Renewables continued to account for the bulk of deals with 47. Europe led the regions in terms of volume with 19 deals, closely followed by the Americas with 17. The US accounted for the quarter’s top four renewable deals as investors bet on clean generation following the Obama Administration’s proposal seeking higher emission cuts from power plants. NRG Yield’s acquisition of Terra-Gen LLC’s wind power facility (Alta Wind) (US$2.5b) and

NRG Energy’s solar-power facility (US$1b) were the biggest of Q2’s renewable power deals.Integrated, energy services, water and others: deal value reaches US$14b US-based Wisconsin Energy’s acquisition of the Integrys Energy Group for US$9b made it the Midwest’s leading utility. The deal was also the quarter’s largest involving an integrated utility and the second largest in P&U overall in Q2. Another notable transaction was Energeticky a Prumyslovy Holding buying back a 40% stake from the Netherlands’ PPF Holding for US$1.5b. A rush of M&A activity in water and wastewater had deal value doubling to reach US$1.5b, with a US$930m acquisition of China Everbright Water by Hankore Environment Tech Group the biggest deal of the segment.

Figure 4: Q1 2014 deals snapshot by segment

Number of deals

Deal

val

ue (U

S$m

)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

0 10 20 30 40 50 60

Generation T&D Renewables Integrated and others

7Power transactions and trends — Q2 2014

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EY Global Transaction Advisory Services (TAS) Power & Utilities contacts

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Doing the right deal in power and utilitiesDoing the right deal right can make a power and utility business more competitive and profitable. Clients turn to EY member firms’ Transaction Advisory Services professionals for advice and support through the life cycle of a transaction, from early stage to execution and post-deal activities. Whether the transaction involves acquisitions, alliances, joint ventures, sales,

divestitures or securitizations, we help clients do the right deal at the right price. We help to determine the true value of an asset, set up the business and tax structure, optimize their position in the regulated revenue and pricing environments and execute the deal. We combine proven practices and consistent methodologies with fresh thinking, giving the advice our clients need to make informed decisions, potentially reduce risks and achieve successful outcomes.

Cara Graham Director, Global TAS Power & Utilities Brisbane, Australia +61 7 3011 3145 cara.graham@au.ey.com Follow @carajgraham

Matthew Rennie Global TAS Power & Utilities Leader Brisbane, Australia +61 7 3011 3239 matthew.rennie@au.ey.com Follow @MattRennie_EY

Shikhar Gupta Global Power & Utilities Analyst Gurgaon, India +91 124 470 1233 shikhar.gupta@in.ey.com Follow @ShikharGupta_EY

JapanKenneth G. Smith TAS Power & Utilities LeaderTokyo, Japan+81 34 582 6663kenneth.smith@jp.ey.com

Asia PacificJulie Hood TAS Power & Utilities LeaderMelbourne, Australia+61 3 8650 7496julie.hood@au.ey.com

Lynn Tho ASEAN TAS Power & Utilities LeaderSingapore+65 6309 6688lynn.tho@sg.ey.com

Alex Zhu TAS Power & Utilities LeaderBeijing, China+86 10 5815 3891alex.zhu@cn.ey.com

EMEIABrunhilde Barnard Africa TAS Power & Utilities LeaderJohannesburg, South Africa+27 11 502 0255brunhilde.barnard@za.ey.com

Remigiusz Chlewicki TAS Power & Utilities LeaderWarszawa, Poland+48 22 557 74 57remigiusz.chlewicki@pl.ey.com

René Coenradie TAS Power & Utilities LeaderRotterdam, Netherlands+31 88 407 8777rene.coenradie@nl.ey.com

Andrea Guerzoni Mediterranean TAS Power & UtilitiesLeaderMilan, Italy+39 0280 669 707 andrea.guerzoni@it.ey.com

David Lloyd Middle East TAS Power & Utilities LeaderRiyadh, Saudi Arabia+966 11 215 9898david.lloyd@sa.ey.com

Björn Gustafsson TAS Power & Utilities LeaderStockholm, Sweden+46 8 52059497bjorn.gustafsson@se.ey.com

Thomas Kästner TAS Power & Utilities LeaderMunich, Germany+49 160 93 917 544thomas.kaestner@de.ey.com

Stéphane Kraft TAS Power & Utilities LeaderParis, France+33 1 55 61 09 28stephane.kraft@fr.ey.com

Tony Ward EMEIA TAS Power & Utilities LeaderLondon, UK+44 121 535 2921tward1@uk.ey.com

Ian Whitlock UKI TAS Power & Utilities LeaderLondon, UK+44 20 7951 0892iwhitlock@uk.ey.com

AmericasDeborah Byers US Southwest TAS Power & UtilitiesLeaderTexas, US+1 713 750 8138deborah.byers@ey.com

Joseph Fontana Americas TAS Power & Utilities LeaderNew York, US+1 212 773 3382joseph.fontana@ey.com

Miles Huq US Northeast TAS Power & Utilities LeaderMaryland, US+1 410 783 3735miles.huq@ey.com

Gerard McInnis TAS Power & Utilities LeaderAlberta, Canada+1 403 206 5058gerard.mcInnis@ca.ey.com

Global contacts

Veeral Patel US Central TAS Power & Utilities LeaderIllinois, US+1 312 879 2028veeral.patel@ey.com

Robert Stall US Southeast TAS Power & Utilities LeaderGeorgia, US+1 404 817 5474robert.stall@ey.com

Lucio Teixeira South America TAS Power & UtilitiesLeaderSao Paulo, Brazil+55 112 573 3008lucio.teixeira@br.ey.com