The Australian M&A Outlook: 2023 Energy, Utilities and Resources Industry Insights

Australia’s domestic gas appetite continues as mines try to access and secure gas supplies in the face of rising energy prices, and as the transition to clean energy proves a marathon (not a sprint).

Expect strong cash flow from hydrocarbons to continue to feed low-carbon investment opportunities such as renewables, EV charging, biofuels, and hydrogen. Speaking of hydrogen: new investors in gas infrastructure are seeking hydrogen opportunities, especially midstream (such as hydrogen vending for heavy goods vehicles).

Meanwhile, trading houses will to continue divesting minority stakes in LNG and coal projects, and to increase their investment in renewables. Similarly, many pension funds are pivoting from hydrocarbons to renewables. 

In 2023, we’ll see an increasingly diverse marketplace, across different aspects of the power and utilities value chain, as government policy and ESG agendas drive investment strategies and deal activity.

In the case of renewables such as wind and solar, we’ve seen a consolidation by several platforms backed by pension funds and specialised infrastructure funds, together with new offshore entrants backed by global energy companies. Given the need for increased renewable generation, and the required capital deployment, expect to see inbound interest continue.

Meanwhile, the investment in firming capabilities (e.g. batteries) has yet to take off in a really meaningful way. This is largely due to the uncertainty of revenue on such projects, and to date successful projects have generally been greenfield projects, supported by state government initiatives and offtake contracts. Similarly, newer technologies (e.g. biofuels, hydrogen) remain at pilot stages.

However, the investment community is generally accepting of the short-to-medium term planned exit of coal-fired generation, and the need for new technologies. We’re seeing the emergence of several specialist energy transition funds who are keen to invest in the sector. We expect such funds to continue to seek opportunities. 

The electricity grid needs substantial investment to expand the network from historical (centralised) coal-fired generation locations and connect to a much wider distribution of solar and wind generation facilities. The need for capital and regulatory returns will undoubtedly change the current ownership model in some jurisdictions.

As an example, the NSW Renewable Energy Zones (REZ) have attracted PPP consortia keen to invest in the sector and roll out the required network connections, and the capital requirement is likely to influence the NSW government when it comes to the potential privatisation of the remaining poles and wires still under state ownership.

Finally, increases to the wholesale cost of gas and electricity have placed (mainly smaller and unhedged) retailers under margin pressure, and several have withdrawn from the sector or been constrained in growth ambitions or been acquired by larger players. This trend is likely to continue. However, deals volume may be modest, as largely players seek to pick up customers via natural attrition from others, rather than paying a premium to acquire customer books.