TNB’s new wind farm acquisition in UK justified

PETALING JAYA: Tenaga Nasional Bhd’s (TNB) latest acquisition of a wind farm in the UK appears to be fair vis-a-vis when compared to a similar wind farm transaction that will be finalised soon in the second quarter of this year.

The group had announced the acquisition of the entire stake in a 97.3 megawatts (MW) onshore wind power portfolio in the United Kingdom for £145.9mil (RM805mil).

Noting the higher than usual acquisition price, TA Research said that the comparable acquisition refers to the acquisition of a 50% stake in the 312MW Borkum Riffgrund 1 (BR1) offshore wind farm in Germany.

“It consists of 78 Siemens Gamesa 4MW turbines that have been operational since 2015. Irish investment company Greencoat Renewables PLC will pay a total cash consideration of £294mil (RM1.61bil) for BR1.

This translates to £1.9 mil (RM10.4mil) per MW versus £1.5mil (RM8.2mil) per MW that TNB had paid for its new wind assets,” TA Research said.

“Typically, we would expect offshore wind farms such as BR1 to fetch higher valuations due to more expensive construction costs.

"Nevertheless, we believe TNB’s new assets is somewhat justified, given that it has locked-in long term eligibility for UK’s Feed-in-Tariff (FiT) and Renewable Obligation Certificates (ROC) subsidy schemes. In contrast, BRI’s eligibility for Germany’s fixed-price contract for difference expires soon in September 2024,” it added.

TA Research said TNB has more than ample capacity to fund this new acquisition which is underpinned by its healthy balance sheet with net gearing of 0.7 times and a cash pile of RM6.7bil.

“We are positive on this acquisition as it will enhance TNB’s environmental, social and governance standing. Moreover, the assets are eligible for FiT or ROC subsidy regimes, which imply stable long-term revenues,” TA Research said, maintaining its “buy” call on TNB with an unchanged discounted cash flow target price of RM10.90.

Meanwhile Public Investment Research said TNB’s unit Vantage RE Ltd’s total operational renewable energy capacity will grow by 23% from 433MW to 530MW soon with this latest deal.

“This comes as no surprise as TNB had already indicated in its recent results briefing that it is looking at a potential acquisition of new assets in UK which is expected by the second quarter of 2022. Pending more details, we keep our earnings unchanged for now,” Public Investment Research said in its report.

The vendor for this deal is Capital Dynamics Ltd, which is an independent global asset management firm and one of the world’s leading clean energy investors.

Capital Dynamics’ focus is on private assets, including private equity, private credit and clean energy.

Public Investment Research noted that Vantage RE’s presence is seen as a vital component to grow TNB’s renewable energy capacity portfolio with immediate growth plan to focus on the acquisition of subsidised ROC and FiT assets across the UK and Ireland.

TNB’s renewable energy footprint in the UK and Europe started in May 2021.

The research house noted that TNB has also successfully acquired a 49% stake in Blyth Offshore Demonstrator Ltd, which is an offshore UK wind farm company in Oct 2021.

The research house maintained its “outperform” call with an unchanged discounted cash flow derived target price of RM12.42 on TNB.