GDF Suez to Sell 30 Percent Stake in Australian Power Assets
French utility GDF Suez (GDFZY) is planning to sell a major stake in its Australian electricity generation and retail business, as it increases its efforts to reduce debt and bolster profit hurt by Europe's slow recovery from the global recession.
According to the WSJ report, GDF Suez has hired Deutsche Bank to offload up to $500 million that is 30 percent stake of its International Power (Australia) Holdings Pty Ltd (IPAH) unit, which runs a coal-fired power plant in Victoria State along with two gas-fired power plants and a wind farm in South Australia State.
RATCH Australia, a joint venture between Thailand's Ratchaburi and Australia's Transfield, is a possible contender, with negotiations with bidders having been under way for "some time".
Coal Could Create Trouble for GDP Suez
But GDP Suez could struggle to sell its Australian electricity assets due to declining demand, particularly for its large coal-fired power stations as there were limited parties looking at merchant generation assets in Australia, a Data Room report suggests.
It would be of interest to some of the big funds, leaving aside coal, said Shaun McGushin, partner at Corrs Chambers Westgarth. The difficulty is going to be the coal."
The coal-fired Hazelwood power station, which has been listed as the dirtiest in the developed world by World Wild Life organization, and the Loy Yang B power station in Victoria, both come under GDZ Suezs kitty.
Some big funding firms have recently expresses their concerns over coal investment. AMP Capital said earlier this month that it would not be interested in funding certain mining and energy projects including coal-fired power generation. Hunter Hall, another funding company has excluded fossil fuel companies from its portfolio.
It may be of some interest to some of the bigger funds if they focus on this as a portfolio investment in the electricity industry. However there are long term remediation issues with Hazelwood and clearly any funds that only invest in responsible or ethical investments will not be looking at this," said McGushin.
GDF Suezs Plan of Action
The IPAH unit also sells power and gas to more than 350,000 customers in Victoria. GDF could retain a stake of around 40 percent in IPAH following any deal.
According to reports, GDF Suez has a debt burden of $34bn and is looking to sell the stake in a similar way to its $480m deal with Japan's Mitsui in October, which saw it offload a 28 per cent holding in four power stations across the two states.
"In the normal circumstances it is difficult to see any of International Powers major competitors being interested in taking a 30 percent investment here -- they typically will want control. It may be of more interest to other industry players such as Marubeni, Mitsui or Ratch," said McGushin.
GDF Suezs Downfall
GDF Suez has been reducing its stakes in other noncore assets globally.
In August last year, the group sold 50 percent of its Portuguese power assets to Japanese trading house Marubeni. In May it also sold a 20% stake in a giant Brazilian dam to Mitsui. In late 2012, GDF Suez also sold a 60 percent stake in a wind and solar power project Canada, to Mitsui and a consortium led by Fiera Axium Infrastructure.
In January 2014, Japanese electronics manufacturer Toshiba Corp. agreed to buy a total 60 percent stake in UK-based nuclear energy company NuGeneration Ltd. from GDF Suez and Spanish utility Iberdrola SA. GDF Suez will retain the remaining 40 percent stake in NuGen.
NuGen was established in February 2009 by a joint venture between GDF Suez and Iberdrola formed for the development of new nuclear power stations in the UK. NuGen was equally owned by GDF Suez and Iberdrola when it was found.
Ofwat allows retailers to raise prices from April
Retailers can recover a portion of excess bad debt by temporarily increasing prices from April 2022, according to an Ofwat statement.
The regulator confirmed its view that levels of bad debt costs across the business retail market are exceeding 2% of non-household revenue, thereby allowing "a temporary increase" in the maximum prices. Adjustments to price caps will apply for a minimum of two years to reduce the step changes in price that customers might experience.
Measures introduced since March 2020 to contain the spread of Covid-19 could lead to retailers facing higher levels of customer bad debt. Retailers’ abilities to respond to this are expected to be constrained by Ofwat strengthening protections for non-household customers during Covid-19 and the presence of price caps.
In April last year, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of non-household revenue.
Georgina Mills, Business Retail Market Director at Ofwat said: “These decisions aim to protect the interests of non-household customers in the short and longer term, including from the risk of systemic Retailer failure as the business retail market continues to feel the impacts of COVID-19. By implementing market-wide adjustments to price caps, we aim to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition.”
There are also three areas where Ofwat has not reached definitive conclusions and is seeking further evidence and views from stakeholders:
- Pooling excess bad debt costs – Ofwat proposes that the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps.
- Keeping open the option of not pursuing a true up – For example if outturn bad debt costs are not materially higher than the 2% threshold.
- Undertaking the true up – If a 'true up' is required, Ofwat has set out how it expects this to work in practice.
Further consultation on the proposed adjustments to REC price caps can be expected by December.
"While it’s great that regulators are helping the industry deal with bad debt in the wake of the pandemic, raising prices only treats the symptoms. Instead, water companies should head upstream, using customer data to identify and rectify the causes of bad debt, stop it at source and help prevent it from occurring in the first place," she said.
"While recouping costs is a must, water companies shouldn’t just rely on the regulator. Data can help companies segment customers, identify and assist customers that are struggling financially, avoiding penalising the entire customer in tackling the cause of the issue."
United Utilities picks up pipeline award
A race-against-time plumbing job to connect four huge water pipes into the large Haweswater Aqueduct in Cumbria saw United Utilities awarded Utility Project of the Year by Pipeline Industries Guild.
The Hallbank project, near Kendal, was completed within a tight eight-day deadline, in a storm and during the second COVID lockdown last November – and with three hours to spare. Principal construction manager John Dawson said the project helped boost the resilience of water supplies across the North West.
“I think what made us stand out was the scale, the use of future technology and the fact that we were really just one team, working collaboratively for a common goal," he said.
Camus Energy secures $16m funding
Camus Energy, which provides advanced grid management technology, has secured $16 million in a Series A round, led by Park West Asset Management and joined by Congruent Ventures, Wave Capital and other investors, including an investor-owned utility. Camus will leverage the operating capital to expand its grid management software platform to meet growing demand from utilities across North America.
As local utilities look to save money and increase their use of clean energy by tapping into low-cost and low-carbon local resources, Camus' grid management platform provides connectivity between the utility's operations team, its grid-connected equipment and customer devices.