The Japanese renewables trend
The Japanese government’s commitment to achieving net zero emissions by 2050 was set by the previous Suga administration in October 2020, centered around decarbonization and their renewable energy strategy. Japanese corporations have since accelerated their investment into the renewable energy sector, with the likes of Mitsubishi Corporation’s plans to double its renewable power generation by 2030. This focus has also fueled wide-scale M&A activity in the space, for example Eneos – a Japanese oil giant – announced its acquisition of a renewables start-up for USD 1.7 bn.
Not just investing in, but also operating renewable energy is not exclusive to conventional Japanese energy investors, such as utilities or trading houses. NTT Group, the largest telecommunication company in Japan, is quickly expanding into the renewable energy sector and is reportedly planning to deploy 7.5GW through its own electricity distribution network by 2030, providing the equivalent of 10% of Japan’s electricity. Given NTT Group’s scale, this deployment is expected to generate valuable M&A opportunities throughout the market.
The Japanese renewable market is creating a competitive space for foreign investors; in particular, European operators with valuable experience in the renewables space. For example, in April 2020, Iberdrola acquired Acacia Renewables - a Japanese renewable energy development platform - joining a consortium of Cosmo Energy and Hitachi Zosen Corporation for the Aomori-Seihoku-Oki Offshore Wind project.
Similarly, corporate players in the renewables space have been expanding into Japan, opening offices, and partnering with local operators on renewable energy projects – in turn creating M&A opportunities. For example, RWE Renewables (RWE) partnered with Kyuden Mirai Energy to jointly develop offshore wind projects in 2019 and likewise ,in May 2021 Orsted partnered with Japan Wind Development and Eurus Energy on offshore wind projects in the Akita Prefecture in Japan. Japanese Renewable Energy also recently sold a partial equity stake in its offshore wind power project to the German renewables developer, wpd. This activity demonstrates considerable M&A opportunity and signals strong appetite from international players, fuelled by the commitment to decarbonization.
Private equity funds have also implemented both M&A and management changes within their portfolios - an effort to shift the focus towards the Japanese renewables space. In September 2021 Carlyle Japan announced its acquisition of JAG Energy, a renewable energy developer from JAG, whilst a leading Japanese domestic private equity fund, Advantage Partners, announced in July 2021, the hiring of Kiichi Suzuki, the former CEO of Diamond Generating Europe Limited, who will lead a newly established renewables and sustainability strategy platform.
Japanese activity in the European market
The increased appetite amongst European renewable investors looking to implement expertise in the emerging offshore wind energy market of Japan, has been strongly supported by the Japanese government who has referenced many European initiatives as possible models for development in the Japanese renewable market. The Japan External Trade Organization (JETRO) also recently launched the European arm of its Japan Innovation Bridge (J-Bridge) initiative - hosting the J-Bridge Carbon Neutral Offshore Wind Energy Seminar to promote collaboration between Europe and Japan.
Conversely, Japanese trading houses and utilities have also demonstrated an appetite to participate in European offshore wind renewable projects. This interest is driven not only by the financial ROI, but also in an effort to understand European strategies and thus implement them in Japanese projects. For example, Sumitomo Corporation – one of the more active trading houses – has a proven track record with partnerships in European projects including Le Treport and Noirmoutier in France.
How has this affected M&A activity across Japan?
A Japanese governmental organization has signaled the ‘economic ripple effect’ that a heightened investment in the renewable Japanese energy infrastructure space is expected to have on non-related industries.
The skilled workforce and technology available will likely enable operators in Japan to capitalize on these investment opportunities. The M&A opportunities available as a result are already demonstrable through NSK’s 2020 acquisition of Brüel & Kjær Vibro - a German leading specialist in condition monitoring systems (CMS) – with c.40% of its sales come from wind energy sector .
The shift towards renewable energy and infrastructure is being echoed by operators in the space, signaling an overarching shift to a more sustainable future - for example, Mitsubishi Heavy Industries - one of the largest industrial conglomerates in Japan – has advocated energy transition and decarbonization projects, looking to add to its portfolio through overseas acquisitions.
Following a renewed focus on ESG-friendly portfolios, we’ve also witnessed the departure of several Japanese companies from non-renewable, carbon-focused projects, leading to several aborted M&A transactions, regardless of the potential financial and synergetic benefits.
In conclusion, this shift towards sustainability and an emphasis on ESG amongst private equities and corporates is driving global M&A activity – in particular, with Japanese companies not just within infrastructure but the entire supply chain.
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