Tilt boosts AGL’s renewables punch
AGL Energy has strengthened its clean energy clout after the Powering Australian Renewables venture paid $NZ2.96bn ($2.75bn) for Tilt Renewables, winning a hotly contested battle.
AGL Energy has strengthened its clean energy clout after the Powering Australian Renewables venture paid $NZ2.96bn ($2.75bn) for Tilt Renewables, winning a hotly contested battle for a string of wind and solar farms and a big pipeline of undeveloped projects.
The Powering Australian Renewables (PowAR) group along with Mercury NZ fended off competition for the listed renewable energy owner from gas pipeline operator APA Group, Canadian pension giant CDPQ and France’s Engie with Infrastructure Capital Group.
AGL owns a 20 per cent stake in PowAR alongside the Future Fund and the Queensland government-owned investment giant QIC, with the venture already the largest owner of wind and solar supply in Australia with 800 megawatts of capacity, second only to Snowy Hydro’s clout as a clean energy generator.
The deal pitched at $NZ7.80 a share includes 1313MW across seven wind and solar farms, a further two wind farms nearly complete and a 3500MW pipeline of projects across wind, solar, battery storage and peaking capacity.
AGL will pay $341m to fund its portion of the deal.
PowAR will take ownership of the Australian assets while Mercury, which already owns 19.92 per cent of Tilt, will take the New Zealand assets at an enterprise value of $NZ770m. Tilt’s biggest shareholder, Infratil, also supports the deal.
The price was viewed by the market at the top end of expectations given the clamour among companies to gain exposure to such an established parcel of renewable assets.
“Based on the sale of the NZ assets to Mercury, our fair value range would have been $1.5bn to $2bn, thus a price paid of (circa) $2.2bn is slightly above the top end of the range, thus a very full price has been paid for both,” Macquarie analyst Ian Myles said.
“However, as an unlisted fund, leverage can be a little more aggressive and capital usage can be better timed, which would add value.”
AGL will hope to secure additional offtake deals from the new suite of assets, which would ease any concern that it may be paying a high price for a passive investment.
Tilt’s Snowtown wind farm in South Australia may be the first power purchase agreement to be inked which has merchant exposure, Macquarie noted.
“As a passive investment, it is hardly exciting for AGL investors with its cost of capital well above the implied bid price,” Mr Myles said.
“However if AGL has some rights to retail the renewables, while the price may seem expensive, it provides AGL a path to green its portfolio over the coming years, which is an insurance policy against future policy changes along with the benefits of firming the renewable generation.”
The deal has landed just two weeks from AGL’s investor day on March 29 amid speculation it may consider a split of its retail and generation arms and could sell one of its coal plants to grab extra market value from a move into green energy.
The power giant is reviewing its business model and hinted at changes to its retail and generation arms as a solar-sparked price rout and government intervention slams the brakes on earnings growth.
Goldman Sachs has previously pointed to gentailers in New Zealand with a lower carbon footprint which have gained a valuation premium in green indices, potentially creating a valuation uplift of $3.20 to $7.40 a share for AGL.
AGL could also consider its ownership of the Loy Yang A and Bayswater plants as part of the review, Macquarie has said.
Australia’s largest electricity retailer plunged to a $2.28bn statutory loss for the first half in February after it was hit by a shock $2.7bn writedown driven by unprofitable wind farm deals.
The utility is being battered by a storm of low wholesale electricity prices as cheap renewables continue to flood on to the market, while moves by both state and federal governments to underwrite new generation has also contributed to a tough outlook for the company.
AGL has launched a mobile phone division as it seeks to broaden revenue sources amid a crunch on its mainstay electricity business, some 18 months after Mr Redman walked away from a $3bn takeover of telco Vocus now in the crosshairs of a higher bid from Macquarie Infrastructure and Real Assets.