The AI boom has ignited M&A opportunities in the clean energy sector

Artificial intelligence has become a hot topic. Fans are touting artificial intelligence as a way to achieve faster energy. Skeptics point to its huge demand for electricity. And some companies operating in the wind, solar, and battery storage sectors are excited about the possibility of these deals. This is because these deals will save their livelihoods.

One of these companies is already blessed with good luck. France's Neoen, which funds, develops, and operates wind and solar power equipment and storage battery arrays, is about to sell 53.32% of its shares to Brookfield Asset Management, which provided approximately 6.1 billion euros (equivalent to about 6.6 billion dollars).

Brookfield has partnered with Temasek Holdings in Singapore, and may be seen as a savior for wind, solar, and storage battery developers who are in financial trouble. The interest rate environment over the past two years has been tough for wind power, solar power, and storage battery developers, and many companies, even major companies such as Siemens Gamesa and Ørsted, are struggling to maintain operations.

The deal came at just the right time for Neoen. The company reported an 8% decline in revenue for the first quarter, and the decline is due to the entry into force of a new power purchase agreement. However, according to Reuters Yawen Chen, who recently analyzed Brookfield's proposal, the French company is looking for ways to build a new 20GW capacity planned by 2030 while working on an “tight balance sheet.” Chen suggests that while this goal may be difficult to achieve, Brookfield has the right motivations, it might help.

A few days before negotiations between an American asset management company and a French wind and solar power company were picked up in the media, another report involving Brookfield and Microsoft became a hot topic. The news is that Brookfield and Microsoft have signed an agreement with a low carbon power capacity of 10.8 GW, and Microsoft, an IT giant, will eventually “hand over” this to IT giants in some form as part of a plan to directly or indirectly procure 100% of electricity from low-carbon sources.

However, the keyword above is “indirectly,” and it is this word that illuminates the partnership between Big Tech and various wind, solar, and power storage companies and supporters in a new light that they don't really like. What “indirectly” means here is that Microsoft does not aim to procure 100% of the electricity it consumes from wind power, solar power, and the batteries attached to them. Theoretically, that may be the case, but in reality, in order to operate 24 hours a day with electricity stored in data centers and wind power or solar power, it would be necessary to invest a huge amount of money enough to sink a company.

So what Microsoft and other big tech companies actually do is buy renewable energy credits from wind, solar, and battery developers and hand them over as proof of low carbon power generation. According to Chen, advances in artificial intelligence technology will stimulate an M&A rush in the wind, solar and battery sectors. That's because Microsoft isn't the only one with large-scale green plans.

This is probably a very likely development. Brookfield is buying Neoen not because of its balance sheet, but because of its capacity and pipeline. This is so that Neoen and other wind and solar developers can profit from stable and steady demand for renewable energy credits received for every 1 MWh of electricity generated by solar power generation facilities. And there will be more companies like Brookfield.

There may be issues with capacity and credit schemes. This issue was recently brought to light by employees of the Science Based Targets initiative. They criticized the organization's management's decision to recognize carbon credits as a means to reduce corporate emissions. The reason employees condemned this decision is that in a situation where carbon credits can be obtained so easily, doubts were growing and spreading that few companies would actually make an effort to reduce their carbon dioxide emissions in the literal sense.

This conundrum is particularly complex for big tech with AI ambitions. Some companies are trying to adopt AI as another driving force for the energy transition, but considering the amount of energy AI consumes, when energy demand rapidly increases due to the use of AI and an increase in hydrocarbon generation capacity is necessary, one cannot help but wonder if there is any point in using AI to promote the transition.

Debates about the use of carbon credits as an indirect means of reducing emissions are heated in transition communities. There are prominent supporters like John Kerry, but there are also vocal opponents like virtually all climate activists. However, as discussions intensify, asset managers are taking the opportunity to bet on carbon credits through acquisitions such as Neoen.

Certainly, wind and solar power installations will generate some electricity if the weather is good. However, new owners will reap real benefits from the renewable energy credits associated with the electricity generated from such installations. And as the AI era progresses, demand for renewable energy credits will increase.