The Renewables Infrastructure Group (TRIG) has announced that it has completed the acquisition of an approximate 36% equity interest in Merkur, a 396MW operational offshore wind farm in the German North Sea. This follows the exchange of contracts to acquire the Project announced in December 2019, and receipt of German foreign investment approvals and EU merger clearances.
However, TRIG intends to sell down a share of its investment to minority co-investors managed by InfraRed, leaving TRIG with an approximate 25% equity interest in the Project. This is expected to complete in July 2020 and, once completed, the investment is expected to represent approximately 8% of TRIG’s portfolio value. TRIG has also partnered with the Dutch pension investor, APG, who acquired the remaining c.64% in the Project.
Merkur’s commercial operations commenced in June 2019 and it benefits from a Feed-in-Tariff until June 2033 (just over 13 years). This is followed by a floor price for a further six years. The existing debt financing in the Project is fixed rate and fully amortising within the initial subsidy period.
TRIG to exit Ersträsk onshore wind farm in Sweden as phase 2 delayed
As previously announced noted in TRIG’s annual results for the year ended 31 December 2019, the construction of Phase 2 of the Ersträsk onshore wind farm has been delayed by its developer, Enercon. TRIG invested in 75% of the equity in Phase 1 (46 MW net) upon it becoming operational in Q1 2019 and had intended to invest in 75% of Phase 2 (126 MW net) upon it becoming operational.
TRIG says that the delays in the construction of Phase 2 will result in the project missing key milestones and, “given the near-term prospects for its progression, the Company has chosen not to proceed with the investment in Phase 2”. TRIG says that it will not suffer any financial loss as payment was only due provided the turbines become operational by the key milestones (TRIG was not exposed construction or delay risks). TRIG says that Phase 2 would have represented approximately 6% of its portfolio value as at 31 December 2019.
Under the terms of the acquisition agreement for Ersträsk, TRIG has an option to sell Phase 1 back to Enercon in the event that Phase 2 does not complete. TRIG says that it intends to exercise this option given Phase 1 was only intended to be part of the larger project. The investment represents c.2% of the Company’s portfolio value as at 31 December 2019. The contractual terms provide for TRIG to recover its investment together with its expected return over the period of its investment. The sale back to Enercon is expected to complete in Q3 2020.
Incremental investment in the Fujin wind portfolio in France
TRIG has made an additional investment into Fujin SAS, a holding company that owns a portfolio of five operational windfarms in France with a gross generation capacity of 87.8MW. TRIG made an initial investment in Fujin in June 2019, and this additional investment takes TRIG’s holding in Fujin from 35% to 42%. Fujin benefits from inflation-linked Feed-in-Tariffs with French utility company EDF with, on average, over five years remaining. Fujin now comprises approximately 2% of TRIG’s portfolio value. Fujin is owned alongside the French developer, Akuo Energy, who remains the majority shareholder and will continue to operate the windfarms.
Investment Commitments and RCF capacity
TRIG began 2020 with approximately £100m of surplus cash. TRIG says that, following the completed investments in Merkur and Fujin, as well as in Blary Hill, the Scottish onshore wind farm, and the planned sell down of Merkur and sale of Ersträsk Phase 1 during Q3 2020, it expects to be c.£50m drawn on its Revolving Credit Facility (RCF), with outstanding commitments of approximately £35m, relating to payments for the construction at the Blary Hill and Solwaybank wind farms due over 2020 and 2021. TRIG’s committed RCF capacity is £340m and so it has plenty of wind farm.
[QD comment: It would appear to be business as usual for TRIG. Even after the completion of the various transactions it has laid out, it has plenty of headroom on its RCF and it continues to trade at a chunky premium. The latter suggests ongoing strong demand for its shares, not surprising given the certainty of its cash flows in the current lower interest rate for longer environment, meaning that that it should be able to raise further equity, as it when it wants to, to continue to grow the portfolio].