As industrial companies grapple with the challenges of decarbonization and look for growth, strategic acquisitions can be a wellspring of new revenue and opportunities to contribute meaningfully to a zero-emission future.
In 2023, spending on the low carbon energy transition reached a record high of nearly $1.8 trillion, and that momentum shows no sign of slowing. For businesses looking at their product suite and wondering how to move into high growth sectors of the energy transition, an acquisition can move what had been ancillary markets to the center of a company’s growth trajectory.
Opportunities abound for power companies looking to move into new areas as the push to electrify manufacturing or replace fossil fuels in heat and energy storage picks up speed.
For the power sector, these acquisitions are not just a revenue opportunity, but a chance to integrate sustainable technologies essential for the global shift toward a low-carbon future.
And the opportunities are enormous.
Power generation needs to more than triple by 2050 and roughly $1 trillion of planned spending on fossil fuel generation by 2030 needs to be redirected into transition technologies and infrastructure, according to an International Renewable Energy Agency report.
Image Credit: International Renewable Energy Agency
While the transition away from fossil fuels in the energy industry is well underway, the pace of investment in the electrification of heavy industries like mining, steel, chemical manufacturing, or in the development of carbon capture, sequestration, and utilization solutions for industry are only beginning to ramp up.
The Role of Acquisitions in Decarbonization
Acquisitions enable companies to quickly adapt to and lead in the energy transition by incorporating advanced technologies, innovative business models, and new competencies into their existing operations. For industrial power and equipment companies, this strategy offers a pathway to strengthen their positions in the market by aligning with the evolving regulatory frameworks and customer demands for greener solutions.
Accelerating the Shift with Strategic Investments
The energy sector’s landscape is transforming rapidly, with a significant emphasis on reducing carbon footprints. Companies are investing in renewable power generation assets, green energy hubs, and technologies that promise lower carbon production to meet net-zero targets. For example, Occidental Petroleum’s acquisition of solar generation assets to power its operations and BP’s strategic partnership to create a green energy hub underscore the industry’s move towards integrating sustainable energy sources.
But the transition is not just about greening existing operations but fundamentally changing business models to support a sustainable future and the industrial supply chain is crucial to that effort.
In fact, investment in the clean energy supply chain hit $135 billion in 2023 and could be as much as $259 billion by 2025, according to BNEF.
Image Credit: BNEF
Navigating the Challenges and Opportunities
While the potential for growth through acquisitions in the context of the energy transition is immense, companies must navigate a complex landscape of technological, regulatory, and market challenges. The key to success lies in identifying targets that not only offer immediate access to new technologies and markets but also align with long-term sustainability goals.
Furthermore, the global investment in energy transition, which reached $1.77 trillion last year, highlights the scale of financial resources being directed towards decarbonization efforts. This influx of capital into renewables and electrified transport, along with a marked jump in M&A activity, underscores the critical role of strategic investments in shaping the future of energy. For industrial companies, leveraging decarbonization acquisitions can be a broader strategy for growth. Strategic acquisitions offer a compelling pathway to accelerate the transition to a low-carbon economy, and a foundation for future revenue growth.