First onshore wind project
- We see potential for future deal pipeline in the Nordics and UK as KEP is cofunding 3 operating wind farms (258MW) in Sweden and Norway.
- This will be KEP’s first onshore windfarm project and a relatively low-risk one given its 6% stake (c.S$14m capex) and IRR of 6-7.5%.
- The co-funding structure with KIT, Norwegian pension fund KLP and Germany reinsurance fund MEAG is in line with KEP’s asset-light strategy.
- This investment brings KEP’s total renewable energy portfolio to 1.8GW (including assets under development) nearer to its 2030 target of 7GW.
KEP and KIT to jointly invest in 16% of 3 wind farms totaling 258MW
? KEP and KIT are co-investing €160m (c.S$233.6m) for a 33.33% stake in FundCo, a joint investment vehicle. The remaining 67% is split between Norwegian pension fund Kommunal Landspensjonskasse (KLP) and MEAG MUNICH ERGO Asset Management GmbH (MEAG) at 33.33% each.
? FundCo will initially co-invest in 49% of 3 operating onshore wind farms in Sweden and Norway with a combined generating capacity of 258MW. The remaining 51% will be held by Fred Olsen Renewable Energy AS (FORAS). FORAS currently leads, operates and owns 12 onshore wind farms with c.788MW of installed capacity and a portfolio of 4GW in different stages of development.
? FundCo will further have a 5-year exclusive right and obligation to invest in all of FORAS’s eligible pipeline of onshore wind energy assets (1.3GW) in Sweden and the United Kingdom (UK) when they achieve final investment decision, for up to a total capital commitment of €480m (c.S$700.8m).
KEP to have a 6% stake in FundCo with 6-7.5% unlevered IRR
? KEP will hold a 6% stake in FundCo or a 3% stake in the 3 onshore wind farms. This equates to c.S$13.98m in investment with an estimated unlevered IRR of 6-7.5%. This gels with KEP’s strategy of being asset-light while pursuing stakes in popular sectors, such as renewable energy.
? Upon completion of this investment, KEP will have a total renewable energy portfolio of c.1.8GW (including assets under development), inching it closer to its target to own 7GW of renewable energy assets by 2030.
? In addition to recurring cashflow from the project, we are also positive on the potential deal pipeline in the Nordics and the UK since it provides KEP an instant foothold in the mature renewable energy markets.
Reiterate Add and SOP-based TP of S$7.20
? We retain our Add call and TP of S$7.20, based on SOP valuations.
? Re-rating catalysts: faster-than-expected pace of asset recycling. Downside risks: weaker-than-expected macro environment.