Scatec secures $1.2bn SN Power for storage sprint

Scatec’s 53MW Los Prados solar project in Honduras (Pic source: Scatec Solar)

 

BY RICHARD HEAP:

Norwegian operator Scatec Solar wants to leapfrog its European rivals by expanding in hydro, storage and wind. Soon it won’t be solely solar.

What happened

On Friday 16th October, the company unveiled a buyout that represents a huge shift in its strategy. Scatec is set to buy all of the shares in Norwegian hydro specialist SN Power from Norfund, the Norwegian government’s investment arm, for $1.2bn.

This is important for Scatec because the company has ambitions to be a large global player in solar, hydro, wind and storage. These are set to be the four key pillars of its growth, which it expects to position it well as renewables grow in the 2020s, and give it flexibility over the technology it can deploy to help countries manage their grids.

As a result, Scatec is set to drop the ‘Solar’ from its name on completion of the deal, which is due in the first half of 2021 subject to the approval of regulators. So, what’s the new Scatec going to look like?

Well, we sat in on an investor presentation that gave a lot of the answers.

There are set to be 450 employees in the combined company, and the $1.2bn deal funds come from four main sources:

  • $700m in acquisition funds, which will be re-financed over 12 months;
  • $200m of vendor finance from Norfund, with which Scatec is poised to form a 51:49 joint venture (in Scatec’s favour) for SN’s assets in Africa;
  • $150m term loan from Nordea, DNB and Swedbank; and
  • $116m in cash

The tie-up with Norfund is based on a decade-long partnership between the pair in Africa. Norfund has backed Scatec to become the largest operator of solar projects in Africa, with 1GW in operation and 360MW soon in Tunisia.

Why it matters

It’s clear Scatec sees this deal as key to its future. It also shows diversification is going to be central to many developers’ growth plans in the 2020s.

For one thing the deal enables Scatec to evolve its portfolio, which is currently made up of 1.9GW of solar in operation and being built. This is spread across 11 countries in Africa, South America and southeast Asia.

Buying SN Power means Scatec can add 1.4GW of hydro, taking it to a total of 3.3GW. Scatec said this would take it beyond European rivals ERG and Neoen in terms of installed capacity.

The transaction helps to position Scatec in SN’s three key markets.

First, the Philippines, where SN owns two hydro projects totalling 642MW; second, in Laos, where SN runs a 525MW hydro operation that produces power for use in Laos and Thailand; and third, in Uganda, where SN runs a 255MW hydro plant. It said that all of these projects offered stable cashflow that it could reinvest.

It also means Scatec can bolster its own 7GW development pipeline with 2.5GW of SN projects in the hydro, floating solar, storage and wind sectors. Scatec is working on ‘several hundred megawatts’ of wind projects in Africa and southeast Asia too.

Raymond Carlsen, CEO at Scatec, explained the strategy in the investor webinar. He said the transaction would enable Scatec to start pairing solar with hydro. This would help in its key markets because solar is reliable during the day while hydro can operate at night. The two can effectively work together as baseload power.

“We like this. It fits very well,” he said.

Carlsen said that storage would be “an even more integral part of the story in future” as countries aim for higher penetrations of renewables on their grids. This will lead to greater grid complexity and, ultimately, mean that firms with diversified portfolios can offer more of the solutions that countries need.

Finally, he said there would be competition between independent power producers for the best sites in the most exciting markets. For Scatec, these will continue to be emerging markets but also countries in the OECD with growing electricity demand.

The bottom line

This $1.2bn buyout is effectively a storage play, though it might not look like it at first glance. It’ll be fascinating to see what projects Scatec works on next.

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