In "Turning Up the Heat - an insight into M&A in the renewable energy sector in 2008", a poll of director-level executives across more than 200 global power and utilities companies, suppliers and financial investors reveals a significant increase in the number of deals and a surge in prices being paid for renewable energy companies.

KPMG partner Antony Cohen, who heads the company's energy and natural resources practice in Australia, says the over-heated European market is creating opportunities in Australia as renewable energy market participants seek to invest in an emerging market.

"Buyers offshore are paying big multiples for assets in an effort to be ahead of the curve as governments seek to cut emissions," Cohen said.

"In Australia a number of state-based initiatives introduced in late 2006 and 2007, the proposed carbon trading scheme and the expanded mandatory renewable energy target are assisting project development."

The survey reveals that the rate and size of merger & acquisition activity in the renewable energy sector has been growing rapidly. Analysts estimate that 2007 saw $US55.7 billion in M&A transactions globally - up by 47%.

While the reasons for this increase in activity are varied, the overall effect has been to push valuations to record levels.

Despite these high valuations, 56% of respondents believe that valuations will increase (compared with just 10% expecting the opposite) and the size and ambition of deals will grow in the next three years.

"The pace of consolidation will accelerate, but not for all technologies," Cohen said.

Roughly 60% of executives surveyed expected to see further consolidation in wind, solar and biofuels, and 30% expected to purchase such a company themselves between now and 2010. The figures are about half for hydro, and even less for tidal.

"This is purely a question of economics," Cohen said.

"Wind especially, but solar and biofuels to a lesser degree, are becoming more financially viable and have pricing structures designed to support them as technology improves."

KPMG advisory practice director Mathew Panopoulos says the renewable energy industry is at an early stage of its development with wind energy likely to be the primary beneficiary of higher targets, given Australia is blessed with "world-class" wind resource.

"Wind is cost effective when compared to most other competing renewable energy technologies," Panopoulos said.

"Australia has a significant pipeline of wind energy projects in feasibility, approval or construction stage which is providing significant investment opportunity for all market participants."

Looking ahead, 64% of respondents surveyed in the Asia-Pacific region said this region had the greatest growth potential and showed the best prospects for renewable energy "buy" opportunities.

Europe was identified as the region most likely to see consolidation and North America was the next most likely region, according to Panopoulos.

"This result is not surprising when you consider the huge growth predicted in electricity demand within the Asia-Pac region being led mainly by China," he said.

"These are exciting times with the upsurge in renewable energy project spend, however investors should not ignore the risks of investing in an embryonic industry."