Sembcorp Industries Buys 2 More Renewable Energy Assets
November 17, 2022
The Covid-19 pandemic saw a mindset shift for investors when it came to renewable energy and the transition to “Net Zero”.
That’s because many companies, worldwide, started taking action to improve their energy mix. Naturally, this meant garnering more of its power from renewable sources.
One of the companies that realised this opportunity during the pandemic was Sembcorp Industries Limited (SGX: U96).
The local power provider spun off from Sembcorp Marine Ltd (SGX: S51) via a demerger in 2020 and is now focused solely on transitioning its power portfolio from “brown to green”.
Earlier this year, Sembcorp Industries agreed to sell two large coal-fired power plants it owns in India.
Now, over the past week, Sembcorp Industries has agreed to buy two more renewable energy assets. Here’s what Singapore investors need to know about Sembcorp Industries’ latest buys.
Clean energy in China and India
Last Friday (11 November) and then two days later on Sunday (13 November), Sembcorp Industries announced two acquisitions in quick succession.
The first deal was a plan to buy 795 megawatts (MW) of solar assets in China while the second was 583 MW of solar and wind assets in India.
With regards to the China deal, Sembcorp Industries’ 49%-owned joint venture (JV) Beijing Energy Sembcorp will acquire 100% equity interests in three solar projects, located in Hebei.
These have a total gross generating capacity of 795 MW and will be purchased from BEI Energy Development.
The initial consideration is an upfront tranche of RMB 15 million (S$3 million) while there’ll be a future capital injection of up to RMB 1.15 billion if BEI Energy’s application to enter the China renewable subsidy catalogue is approved.
That deal structure provides Sembcorp Industries with a downside protection mechanism in the (unlikely) event that the application isn’t approved.
BEI Energy’s assets are contracted to State Grid Corporation of China – a large state-owned electric utility and grid operator.
Cash flows from the assets come from 3-5 year power purchase agreements (PPAs), providing strong visibility of revenue.
Buying India’s Vector Energy
The second deal will see Sembcorp Industries’ fully-owned subsidiary – Sembcorp Green Infra – acquire a 100% equity interest in Vector Green Energy, an independent power producer in India, for INR 27.8 billion (S$474 million).
Vector Green Energy is currently owned by Global Infrastructure Partners via its India Infrastructure Fund II.
Vector Green’s power portfolio consists of 495 M of solar and 24 MW of wind capacity already in operation, along with a further 64 MW of solar capacity that is under development.
Sembcorp Industries’ current India portfolio is split between 1,958 MW of wind and 496 MW of solar. This deal will help strengthen its solar portfolio in India to offset any low-wind seasons.
In terms of the energy assets’ customers, they’re contracted out on long-term PPAs with an average of 19 years remaining.
Sembcorp Industries 10 GW clean energy target could be revised
After these two deals close, with both expected to be completed in Q1 2023, Sembcorp Industries’ renewable energy capacity will increase to 8.5 GW.
Both deals are expected to be accretive to earnings. It also takes Sembcorp Industries that much closer to its stated 10 GW target of installed renewable energy capacity by 2025.
At the company’s current pace of acquisition, that target may need to be revised at some point next year.
After a 52% surge in its share price so far in 2022, but still around 12% off its 52-week high, Sembcorp Industries looks like it will continue to position itself for growth in the renewable energy sector.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Sembcorp Industries Limited.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.