Summary

• SSE to dispose interest in Ferrybridge and Skelton Grange multifuel assets to European Diversified Infrastructure Fund III.
• In the past, SSE sold stake in Walney Offshore Wind Farm to Greencoat UK Wind.
• Besides reducing its net debt, the company planned to invest in low-carbon energy infrastructure.

SSE Plc (LON: SSE), an integrated energy utility company recently announced to sell 50 per cent stake in its energy-from-waste units to European Diversified Infrastructure Fund III for a deal worth £995 million in cash. Managed by First Sentier Investors, the European Diversified Infrastructure Fund III is an infrastructure fund. The two waste to energy ventures are called the Multifuel Energy Limited or MEL1 and the Multifuel Energy 2 Limited or MEL2. With clients across Asia, Australia, Europe, and North America, First Sentier has more than twenty years of experience in infrastructure investment. European Diversified Infrastructure Fund III is a euro-denominated fund.

The sale comes as part of SSE’s plans to generate at least £2 billion funds by disposing the company’s non-core assets by autumn 2021. It is to be recalled that around mid-2020, the energy utility company recognised its interests in MEL1 and MEL2 as an early preference for sale.

Earlier sales by SSE

Prior to this announcement, SSE sold 25.1 per cent non-operating share in Walney Offshore Wind Farm to Greencoat UK Wind for £350 million. Additionally, SSE had agreed to get rid of its 33 per cent interests in MapleCo (meter asset provider) to Equitix. On closing this deal with Equitix, the Scottish energy firm would get net earnings of around £90 million. Equitix invests, develops, and manages funds in infrastructure and energy assets within Britain and Europe.

SSE’s plans

SSE would utilise the proceeds from these sell offs to support its initiatives for helping Britain to reach net-zero carbon emissions. Additionally, the company looked ahead to decrease its net debt. Over the next five years, the energy giant has plans for investing approximately £7.5 billion in low-carbon energy infrastructure.

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The assets on sale

The MEL1 and MEL2 are a 50-50 joint venture (JV) between SSE and Wheelabrator Technologies Inc. The JV comprises of the operational Ferrybridge Multifuel 1 and Ferrybridge Multifuel 2 units (MEL1), besides the Skelton Grange Multifuel development project (MEL2), all located in West Yorkshire.

SSE has 50 per cent share in the Ferrybridge Multifuel 1 that entered commercial function in 2015. The Ferrybridge Multifuel 2 is known to have entered commercial operations in 2019 and SSE has a 50 per cent share in this as well. The installed capacities for each of these include 75 MW. While Ferrybridge Multifuel 1 is capable of processing around 725,000 tonnes of waste every year, the Ferrybridge Multifuel 2 could process 675,000 tonnes.

The financial close for the proposed Skelton Grange Multifuel unit in which SSE has 50 per cent interest is around April 2021. Scheduled for beginning commercial operations in 2025, Skelton Grange Multifuel would have an installed capacity of 45 MW, besides being capable of processing around 400,000 tonnes of waste on an annual basis.

SSE's share of adjusted operating profit in MEL1 and MEL2 was £30.5 million in the one year to 31 March 2020.  The reported pre-tax profit stood at £18.1 million. On the same date as above, the company’s share of the gross assets within MEL1 and MEL2 remained at £344.6 million.

SSE has kept its 50 per cent interest in the Slough Multifuel project, which is jointly owned with Copenhagen Investment Partners (CIP). Focused on Europe, North America, and Taiwan in East Asia, CIP’s existing investments include various energy infrastructure assets such as offshore power transmission, offshore wind, onshore wind, biomass and waste to energy, and solar PV investments. 

Key details of the transaction

The transaction which remained subject to antitrust approval by the European Commission (EC), under the European Union Merger Regulation framework, is likely to be completed by 30 November 2020. The long-stop date for the transaction is 31 March 2021. While SSE’s joint financial advisers on this transaction were Barclays and Morgan Stanley, Freshfields Bruckhaus Deringer acted as SSE's legal adviser. 

Views from the experts

Many analysts agreed that the planned sale by SSE would assist the energy company to strengthen its balance sheet, besides supporting the company’s preparation of investing £7.5 billion in low-carbon energy infrastructure planned for next five years. Some experts added that the latest divestment would enhance SSE’s focus on electricity networks and renewable energy, specifically the UK offshore wind.

Stock performance

Having operations and investments across the UK and Ireland, SSE Plc is a British integrated energy utility company. The energy firm has its own regulated electricity networks and renewable energy resources. In addition to producing, storing, distributing, and supplying gas, SSE generates, transmits, distributes, and provides electricity.

On 14 October 2020, at 10.39 AM, the company’s stock (LON: SSE) was trading at £1,349.50 up 0.11 per cent from its previous day’s close of £1,348.00. The 52 week low high range was recorded as 1,072.50 and 1,686.50. With a market capitalisation (Mcap) of £14,041.16 million, the stock provided a negative return on price, which was minus 7.45 per cent on a year to date (YTD) basis. The total volume of shares traded at the time of reporting was recorded at 185,987.

It is to be noted that the stock has been consistently moving up since 14 September 2020 (£1171.00). The last two significant peaks attained by the stock during the year 2020 were on 21 February (£1686.00) and on 17 July (£1436.00).