On November 3, 2009, power generator TransAlta Corporation announced the completion of its C$1.6 billion acquisition of Canadian Hydro Developers, which develops renewable energy projects and has an existing operating portfolio of wind, hydro and biomass facilities located across Canada. At the time of announcing the offer for Canadian Hydro, TransAlta CEO Steve Snyder described the transaction as a continuation of a strategy to expand the firm’s renewable energy portfolio and noted that the resulting company would be “wellpositioned to succeed in a world in which both capital and carbon are constrained.”

We foresee demand for renewable energy assets continuing to grow in both Canada and the United States in 2010 and beyond for a number of reasons. First, large industrial emitters, such as TransAlta, will be under continuing pressure to reduce their carbon footprint or otherwise to prepare for the impending regulation, in some form, of greenhouse gas emissions. One strategic way for emitters to address the impending regulatory burden in a carbon-constrained environment will be to own renewable energy or other “green” assets.

Second, to increase installed capacity of renewable energy, many jurisdictions have introduced programs to assist in the development and financing of renewable energy projects. A good example of such a program is the feed-in tariff (FIT Program) that the Ontario Power Authority introduced under the Green Energy and Green Economy Act, 2009 (Ontario). The FIT Program provides guaranteed and favourable pricing for many forms of renewable electricity generation. We expect the FIT Program to ultimately result in thousands of new megawatts of renewable energy capacity being connected to the Ontario grid. However, large amounts of capital investment will be needed to construct these renewable energy projects, many of which are currently being developed by smaller developers that do not necessarily have access to the capital ultimately required. Accordingly, in a capital-constrained environment, we expect that developers will seek partners to finance projects or that the developers will try to sell development projects to larger operators.

This combination of strategic demand for renewable energy assets and the financing requirements for developing new projects points to an active period in renewable energy M&A in 2010 and beyond.