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Iberdrola, through its subsidiary ScottishPower, has agreed to sell its traditional generation assets in the United Kingdom to Drax Smart Generation, a subsidiary of the Drax Group for GBP702 million (US$922.5 million). Thus, the company becomes the first 100% renewable integrated energy business in the UK.
Through this sale, Iberdrola is divesting from 2,554 MW of traditional generation power. This includes 1,940 MW of combined cycle gas generation capacity. The Damhead Creek (805 MW), Rye House (715 MW) and Shoreham (420 MW) power plants are all located in south-east England and have have contracted capacity payments of GBP127 million (US$166.9 million) for the period 2019 to 2022.
Drax is also acquiring the 440 MW Cruachan pumped storage hydro power station, located in the Argyll and Bute council area of Scotland. This facility provides over 35% of the UK’s pumped storage by volume and has been in operation since 1965.
Furthermore, the portfolio includes 126 MW of run-of-river hydro generation located in south-west Scotland. The Galloway and Lanark plants both benefit from index-linked Renewable Obligation Certificate (ROC) revenues extending to 2027.
The remaining capacity is comprised of a small combined cycle gas-fired power plant in Blackburn (60 MW) and a 50,000-tonne biomass-from-waste facility in Daldowie, which benefits from a firm offtake contract agreement with Scottish Water until 2026.
These assets are expected, based on recent power and commodity prices, to generate EBITDA in a range of GBP90-110 million (US$118.3-144.6 million), from gross profits of GBP155 to 175 million (US$203.7 to 230.0 million), of which around two thirds is expected to come from non-commodity market sources, including system support services, capacity payments, Daldowie and ROCs.
Drax has entered into a fully underwritten GBP725 million (US$952.7 million) secured acquisition bridge facility to finance the acquisition, with a term of 12 months from the first date of utilisation of the facility (with a seven-month extension option). The facility is competitively priced and below Drax’s current cost of debt.
The transaction is expected to close on 31 December 2018.