Fortum has signed an agreement whereby the company is to sell 54% of its 185 MW solar PV portfolio. The assets are going to be sold to UK Climate Investments (40%) and Elite Alfred Berg (14%), the latter of which has the opportunity to buy an additional 16%. Fortum will retain minority ownership of the assets and continue to provide operation and maintenance (O&M) to the sites.
“We are delighted and honoured to start co-operation with Fortum and UK Climate Investments regarding investments into renewable energy assets on behalf of our investor clients,” says Daniel Pasternack, CEO of Elite Alfred Berg.
The total consideration from the divestment of the 54% stake on a debt and cash free basis, including the effect of deconsolidating Fortum's minority part of the net debt, is expected to be approximately €150 million. The positive impact on Fortum's results from selling part of the solar portfolio will be approximately €20 million and will be booked in the M&A and Solar & Wind Development unit. The transaction is subject to regulatory approvals in the EU and is expected to close in the beginning of the third quarter 2018.
“This project demonstrates the growing maturity of India’s secondary market for renewables – creating an environment in which private investors have confidence to invest in new greenfield projects that will accelerate the decarbonisation of India’s economy,” says Richard Abel, Managing Director of UK Climate Investments.
The portfolio in question makes up for the complete Indian generation capacity, Fortum does however stress that they are not exiting the Indian PV market, but seek to use the additional funds to invest in new assets. Fortum seeks to allocate €200–400 million of its growth capital to solar projects in India.
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“The agreement with Elite Alfred Berg and UK Climate Investments is an important step in our solar strategy. Our ambition is to continue the partnership also for future solar power projects. The arrangement frees up capital for further investments and enables Fortum to continue to utilise its key competencies to develop, construct and operate solar power plants in India,” says Kari Kautinen, SVP, M&A and Solar & Wind Development at Fortum.
In October last year, Fortum released a statement that it is further committed to the Indian PV market, following a leak which suggested that Fortum is looking to sell its PV assets in the country. The company seeks to focus on O&M services as well planning and construction of PV plants.
The Indian PV market is very strong at the moment, with 25-year power purchase agreements at attractive costs being granted to successful tender bids. India added 9.1 GW in 2017, ranking it the third biggest installer after China (53 GW) and the US (10 GW). For 2018 India announced that it will add 11 GW making it the second largest solar market.
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In terms of volumes and numbers, India has always been an attractive destination for MNCs. Yet why do MNCs opt to sell assets in India to raise investment and not direct Investment? In recent times, sale of renewable energy assets is gaining momentum and apparently lucrative too. At a time when tariff is falling, what does the new purchaser gain through acquisition of second hand assets? Theory is often rosier than reality.