LONDON (Reuters) - Merger and acquisition activity in the global power and renewables sectors should pick up this year, after the value of deals fell by 10 percent in 2013 as policy uncertainty crushed investor confidence, a report by PwC showed on Tuesday.
The value of total worldwide power and renewables deals fell by 10 percent to $141 billion (85 billion pounds) in 2013 from a year earlier due to changes to government policies and constrained finance, the global audit firm said.
However, activity should pick up this year. In particular, a return of very large mergers in the U.S. power sector could help drive the value of the global deals in power and renewables, the report added.
"After a year in which considerable sector uncertainty has affected deals, we anticipate greater confidence during 2014," Norbert Schwieters, global power and utilities leader at PwC, said in a statement.
"Participation in the sector continues to widen, with the attractions of contracted or regulated returns pulling in a wide range of buyers."
The total global value of deals in the gas sector dropped 38 percent to $29 billion (17 billion pounds) last year from a year earlier. In Europe in particular, power generation from natural gas no longer makes economic sense for utilities and many closed plants last year.
The total value of transactions in the electricity sector was down 2 percent at $90 billion (54 billion pounds) last year. However, renewables deal value rose 25 percent year-on-year to nearly $22 billion (13 billion pounds).
"The upturn in deals for renewable power targets comes with the sector seeing a steady flow of deals as power utility companies seek to capitalise on renewable economics," the report said.
"The sector is also attractive to financial buyers because of the predictable returns that flow from completed projects with long-term contracts or regulated returns."
Chinese power companies, Japanese trading houses and Korean companies were behind the largest deals last year.
They completed transactions in both the Asia Pacific region and further afield in the Americas, Europe and Africa. Korea Electric Power Corporation <015760.KS> acquired a 70 percent stake in Egbin power plant from the Nigerian government in a $407 million (245 million pounds) deal.
"Africa is a growing focal point for power deals as well as capital project investment ... The region needs 250 gigawatts of new generation by 2030, much of which will need to come through commitments from and partnerships with other continents," PwC said.
(Reporting by Nina Chestney, editing by William Hardy)