VH
GLOBAL SUSTAINABLE ENERGY OPPORTUNITIES PLC
25
July 2024
Investment in 248.4MW solar & onshore wind portfolio in
Spain, Portugal and Sweden
VH Global Sustainable Energy
Opportunities plc ("GSEO" or the "Company") - the London-listed
investment company managed by Victory Hill Capital Partners LLP
focused on investing in energy infrastructure essential in the
global transition towards net zero - is pleased to announce the
acquisition of a portfolio of seven solar and two wind assets
across Europe. The transaction will be completed in two phases.
Once fully operational, the portfolio will have a total installed
capacity of 248.4MW and will be expected to generate 489,900 MWh
per year, equivalent to powering over 100,000 Spanish homes
annually while saving c150,000 tonnes CO2 emissions per
annum.
The first phase of the investment is
the acquisition of a portfolio of five assets with a generation
capacity of 59.8MW and project rights of four ready-to-build
("RTB") solar PV assets in Spain with a generation capacity of
188.6MW.
The total consideration for the first
phase is EUR 53m for a portfolio of five assets
comprising:
· 3.7MW
operational solar PV plant in Spain;
· 6MW
operational onshore wind asset in Sweden;
· 20MW
solar PV plant under construction in Portugal;
· 10.3MW
solar PV plant under construction in Spain; and
· 19.8MW
RTB onshore wind asset in Spain
The second phase of the investment
consists of funding the construction of the 188.6MW RTB solar PV
assets, for a total amount of EUR45m in Q4 of this year. The
construction is to be fully funded by a European strategic fund
("equity co-investor") and project finance debt.
Once the second phase is completed,
GSEO will be the largest owner of the portfolio with an effective
ownership of 43.5%, with the balance split between the equity
co-investor and joint venture partners, Spanish Power S.L., a
developer and owner of renewable projects in Iberia and
Sweden.
|
First Phase
|
Second Phase
|
Combined
|
Portfolio:
|
59.8MW
(5 assets)
|
188.6MW
(4 assets)
|
248.4MW
(9 assets)
|
|
|
|
|
Funding
|
|
|
|
· GSEO
|
EUR53m
|
-
|
EUR53m
|
· European strategic fund
|
-
|
EUR45m
|
EUR45m
|
· Debt
|
c.50% LTV
|
c.50% LTV
|
c.50% LTV
|
|
|
|
|
Effective Ownership:
|
|
|
|
· GSEO
|
|
|
43.5%
|
· European strategic fund
|
|
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36.5%
|
· Operating partner
|
|
|
20.0%
|
Richard Lum, Co-CIO of Victory Hill Capital
Partners commented:
"We are pleased to announce this
new investment,
which will bring the total number of assets in the GSEO portfolio
to 36, split across seven countries and six technologies. The
transaction commits capital previously earmarked for the second
project in our UK flexible power and carbon capture and reuse (CCR)
programme, to a programme which will generate yields for
shareholders in a more time efficient manner, without compromising
on returns.
"Key power-dependent economies in
Western Europe, including those in this programme (Spain, Portugal
and Sweden) are widely acknowledged to be at the front end of
significant electricity demand in the coming years, and our
programme will target structural demand gaps caused by the
disruptive effect of power demand emanating from areas such as data
centres driven by the energy intensiveness of AI processes. It has
been estimated that power demand in Europe may increase by close to
50% in the next decade as a result of the build-out of AI-driven
data centres throughout the region. Through this programme, we will
work with our joint venture partner, Spanish Power, S.L., to
capture favourable revenue opportunities caused by this emergent
demand side dynamic."
Rationale for transaction
The aim of this programme is to
continue to support the global energy transition by identifying
market dislocations and providing investors with a differentiated
return. The three markets targeted in this programme are widely
acknowledged to be at the front-end of significant electricity
demand in the coming years due to increased electrification of each
country, the implementation of decarbonisation targets and the
build out of new energy intensive sectors including data centres
and AI technology's significant demand for power.
In Spain, the nationally mandated
need to ensure quick penetration of solar and wind generation, the
accelerated decommissioning of baseload generation sources such as
nuclear power, coupled with a limited interconnection with
continental Europe, ensures conditions are aligning to allow
investors to secure differentiated returns through pursuing private
commercial revenue contracts.
Portugal's decarbonisation strategy
centres around electrification and the expansion of renewables as
part of the electricity generation mix. As part of its National
Energy and Climate Plan, the country is targeting 80% of
electricity generation to come from renewables by 2030 and aims to
reach a 47% share of renewables in final energy consumption and 20%
share of renewables for transportation.
Sweden is a global leader in
decarbonisation and has targets to cut greenhouse gas emissions by
59% by 2030 compared with 2005 and has 100% renewables in its
energy mix. A major growth in power demand in northern Sweden is
expected, primarily driven by an agenda to decarbonise energy
intensive industries by locating these close to cheap sources of
renewable energy, such as AI-driven data centres, EV battery
manufacturers, and green steel which are expected to increase
demand by 19TWh of clean energy.
Construction element of the programme
The mandate of the Company is to
enable the energy transition, which implies a need to build new
assets alongside investment in yielding operating assets. As
construction assets in this programme reach completion,
shareholders are expected to benefit from further NAV growth and
dividend coverage in excess of payout targets.
The first phase of the investment
benefits from having two operational projects as well as two
short-cycle construction solar PV assets in Spain and Portugal
which are expected to be completed Q4 2024. The construction of the
Spanish wind asset is expected to begin in Q4 2024, with completion
in Q4 2025. The second phase assets are expected to be completed in
Q4 2025. Therefore, all the assets are expected to be fully
operational by the end of 2025.
To mitigate the construction risk of
this programme, in addition to entering into engineering,
procurement and construction ("EPC") contracts with reputable
companies on a lumpsum turnkey arrangement, strong protections have
been put in place. Key measures include clawback mechanisms against
the joint venture partner in case of delays and costs
overruns.
Target return & leverage
Once fully constructed, the
portfolio's levered returns are expected to be in line with the
Fund's target total NAV return. The investment manager has
identified a series of value creation initiatives which could be
implemented on this programme following its construction, enabling
it to target returns in the mid-teens.
Funding to implement further asset
value creation initiatives is expected to come from cash generated
by ongoing operations across the GSEO portfolio.
Due to the strategic nature of these
assets, competitively-priced debt is available at the construction
phase. As such, as part of the second phase deployment there would
be 20-year debt on the programme with a loan-to-value of
approximately 50%. This would bring the total leverage of the
Company to approximately 15%. GSEO should continue to be the
lowest-levered fund within its peer group.
Capital allocation
The Board and the investment manager
monitor the market regularly to determine the relative merits of
deployment of capital into new or previously announced projects.
Following a comparative analysis, it was concluded that
reallocating the "committed, not deployed" funds from the second UK
gas-fired power plant with CCR to this new solar & wind
programme provides shareholders with greater benefits,
namely:
· It
offers shareholders access to yield sooner as part of the
investment is already operational, providing yield from day one and
a shorter construction period. In contrast, the second UK project
would taken at least 18-24 months to become fully
operational.
· It
offers a higher target return from day one, together with greater
potential for value creation.
· It has
a lower construction risk profile by having a shorter expected
construction period (6-18 months currently, compared to 18-24
months with the UK project).
· It
further diversifies the portfolio, both technologically and
geographically.
The Board has reviewed the capital
allocation options available currently, especially in view of the
discount the Company's shares are currently trading at. The Board
always considers the interests of all shareholders. It has decided
that the benefits of this investment, at this time, are
considerable. It offers important geographical diversification into
established energy markets in Europe, the addition of another
technology, more individual assets thus reducing concentration
risk, the opportunity for future return growth through
hybridisation, immediate income and income growth over the next
year and thereafter. The Company is committed to a progressive
dividend and this investment is important in being able to deliver
on this.
The Board does not rule out further
increases to the buyback programme, continuing to have flexibility
to do so utilising surplus capital that is unaffected by funding of
this investment. The Company also remains focussed on adding value
to our existing investments and to providing sustainable returns
for our investors.
Sustainability
An independent assessment of the
project, as per the investment decision process, has concluded that
the project is compliant with the Company's six relevant
Sustainable Development Goals - SDGs
3, 7, 8, 9 13 and 17 - and will do no harm in the
context of the remaining 11 goals.
www.vh-gseo.com
The Company's LEI is
213800RFHAOF372UU580.
For further information:
Edelman Smithfield (PR
Adviser)
Ged
Brumby
+ 44 (0)7540 412 301
Victory Hill Capital Partners LLP
(Investment Manager)
Navin
Chauhan
info@victory-hill.com
Deutsche Numis (Corporate
Broker)
David
Benda
+44 (0)20 7260 1000
Matt Goss
Apex Fund and Corporate Services (UK)
Limited (Company Secretary)
ukfundcosec@apexfs.com
About Victory Hill Capital Partners LLP
Victory Hill Capital Partners LLP
("Victory Hill") is authorised and regulated by the Financial
Conduct Authority (FRN
961570).
Victory Hill is based in London and
was founded in May 2020 by an experienced team of energy financiers
that spun-out of a large established global project finance banking
group. The team has participated in more than $200bn in transaction
values across 91 conventional and renewable energy-related
transactions in over 30 jurisdictions worldwide. Victory Hill is
the investment manager of the Company.
The Victory Hill team deploys its
experience across different financial disciplines in order to
assess investments holistically from multiple points of view. The
firm pursues operational stability and well-designed corporate
governance to generate sustainable positive returns for investors.
It focuses on supporting and accelerating the energy transition and
the attainment of the UN sustainable development goals.
Victory Hill is a signatory of the
United Nations Principles for Responsible Investing (UN PRI), the
United Nations Global Compact (UN GC), Net Zero Asset Managers
Initiative (NZAMI), a member of the Global Impact Investing Network
(GIIN) and is a formal supporter of the Financial Stability Board's
Task-Force on Climate-related Disclosures (TCFD).
About Spanish Power S.L. ("SPAWER")
SPAWER is a renewable energy
developer based in Madrid, Spain. It was established in 1998 and is
involved in development, financing, construction management and
operation of renewable energy projects. It has a presence in three
countries (Spain, Portugal and Sweden) with a track record of
constructing over 540MW of projects and has developed and sold
around 1.8GW of solar and onshore wind projects.