Welcome to this call with Orestel. I now hand the word over to CEO, Mads Nieva. Please go ahead.
Thank you very much, and good afternoon or good morning, everyone. I'm here today with our Group CFO, Marjane Wienholt and Onshore CEO, Declan Flanagan. As announced earlier today, We have entered into an agreement to acquire Brookfield Renewable Ireland in U. K, a leading onshore wind platform with an Orestel. Tractive portfolio of 389 Megawatt in operation and under construction, 149 Megawatt of advanced development projects And a development pipeline of more than 1 gigawatt of mainly onshore wind projects in Ireland and the UK.
With the acquisition of Brookfield Renewable Ireland in U. K. Or simply BRI, we acquired a fully functional stand alone business With a sizable and attractive operating portfolio and development pipeline of high quality, as well as a strong team of more than 70 professionals Between offices in Cork and Edinburgh. We will acquire 100 percent of BRI at an enterprise valuation of $571,000,000 as 31st December 2020. The acquisition is an investment case with healthy economics based on prudent assumptions Orestel.
We expect a meaningful spread to whack from the investment with upside related to utilizing the platform's Orestel. BRI is a strong and scalable platform in an attractive And growing Ireland and UK regional market. The platform brings in a very complementary skill to our existing onshore capabilities With BRI's deep expertise in complex project development at scale as well as deep commercial expertise. BRI offers substantial medium- to long term opportunities within Europe and fits our existing renewable portfolio very well. The acquisition will expand our business platform in Europe and provide us with additional access to customers, partners and talent, As well as deeper insight into market and regulatory dynamics, all of which will provide additional critical mass to our global presence.
We also see complementarity and synergies to our offshore wind business in the U. K. And as the platform adds further In the coming years, we expect that our customers will demand more and more green multi technology solutions Combining wind, solar and storage to deliver more efficient and stable load profiles, supporting the Orestel. This acquisition allows us to further diversify our geographic footprint and Orestel. Now turning to Slide 4.
Our onshore portfolio has until today been solely focused on the U. S, where we are operating at scale with 1.7 gigawatt of operational capacity and 2.3 gigawatt under construction. The rapid expansion of our U. S. Onshore portfolio has made us among the 5 largest constructors in terms of new capacity additions in 2020.
With our strong U. S. Position, we see this as a good time to expand into Europe. The expansion will not dilute our focus on maximizing value creating growth in the U. S, which remains our dominant onshore growth engine.
Our strategic ambition is to further strengthen our position in North America By building a diverse onshore wind and solar PV portfolio, most recently underpinned with the announcement of the final investment When we entered the onshore renewables business in the U. S, we did it via acquisition of 2 different platforms. And with this experience, We have a tested model of buy, grow, integrate that we can now deploy for BRI. The Onshore team has accelerated project development and execution compared to what we had initially expected, while at the same time showcased the ability to take on projects This mix of organic and M and A growth has been the formula behind our very strong onshore performance. We have carried out an extensive assessment of the European onshore market and have assessed multiple onshore targets across Europe I believe to have found the best fit as BRI offers a platform with a competitively advantaged position Driven by its development pipeline, its operating portfolio and its very strong team with the capabilities and Orestel.
All in all, This acquisition is an important strategic milestone for the Orestel Group, and we see this acquisition as a natural next step for Orestel in our vision of creating a world With that, I'll now hand over to Declan.
Thank you, Matt. We'll turn to Slide 5 at this point. Let me start by saying that I obviously share Matt's excitement about the acquisition BRI. It's a strong strategic and operational fit and a very complementary business culture. This transaction is the result of a long process And what is the long term growth potential of the platform under ownership?
Over the course of diligence, we have become very excited Excited to join The ambitious culture, strong greenfield development DNA Plus great commercial skills all combined to make this a strong fit for the Onshore business unit and the group more broadly. The near term scale of the investments is meaningful at the onshore business unit level, including 2022 earnings contribution. Obviously, the scale of projects in Europe is smaller, as indeed it is almost everywhere outside our core U. S. Markets like Texas and the Midwest.
Scale has therefore been a big part of our filter when looking at European expansion. We have been impressed by the team's ability to develop 100 Megawatt Range Projects in Ireland and Scotland. Given their relatively higher unit revenue, such projects stack up well In addition to the current operating projects, the BRI team have developed, financed and sold multiple projects To a variety of institutional buyers in recent years. So we believe this is a platform and a team that can execute at scale We see potential to expand the technology focus to include solar and storage, positioning us to be the leading Multi Technology Onshore Platform in the Irish Market. Needless to say, our long term ambition for is to be a significant The combination of BRI with our existing commercial teams in Europe deepens our capability set and can create new market entry options, For example, via joint ventures or standalone larger scale project acquisitions.
Finally, the BRI team have demonstrated very Orested. .:] Strong capabilities in the area of energy trading and corporate PPAs, both of which will provide direct synergies to Orested's existing market efforts and offtake solutions in the region. Turning to Slide 6, I will conclude with a brief quantification of Platform and Growth Plan. We believe we have agreed a disciplined purchase price, the significant majority of which Orestel. This is a portfolio which is backed by a combination of government contracts as well as strong credit Corporate offtake agreement, including repeat customers.
We step into a portfolio of approximately 400 megawatts of Operating are under construction onshore wind and based on our expected EBITDA for the portfolio in 2022, we estimate an enterprise value There are some small projects in the operating portfolio. BRI team have shown they have good technology partners, good contracts and are an efficient asset owner. So we are very comfortable owning this fleet. But obviously, the growth focus is on larger projects as mentioned previously. In addition to the 400 megawatts operating and under construction projects, there are approximately 150 megawatts of advanced stage Projects in Ireland and Scotland, and we expect to commence construction on the first of these next year.
The longer term wind pipeline of around 1 gigawatt is weighted towards larger projects in Ireland, including a number in partnership with Quilsha, the state forestry company and the largest landowner in Ireland. Altogether, we are planning a 1.5 gigawatt Onshore business in the Ireland and the UK, both markets with strong policy ambitions for clean energy. Ireland has committed to a very ambitious target of 70% clean energy by 2,030. Indeed, Ireland is already at the forefront Renewable Energy Adoption and has a rapidly growing corporate offtake market. The combination of government supports and corporate demand creates an attractive investment environment.
These attributes coupled with growing interconnection to the UK as well as planned interconnection to Mainland Europe all combine To make for a very interesting regional market with Orested as a major multi technology player. So while the U. S. Will clearly remain Our major onshore growth engine, this transaction marks an important step in the growth and globalization of our onshore business. Finally, let me conclude by saying that throughout the transaction process, we've been very impressed by the VRI team.
It's a team that we really feel is the best fit among the European opportunities we have looked at over the past year or so. They've shown the key attributes of cohesion and owner mindset that we've been looking for, and we very much look forward to welcoming the full team to Orsted. On that note, I will now open for questions. Operator, please.
Thank you. This concludes our presentation, and we're now happy to answer your questions. Please respect only one question per participant and then you can go back to the queue for a second question. With Our first question comes from the line of Jenny Ping from Citigroup. Please go ahead.
Hi, good morning or good afternoon. So this Oreste. Basically, Declan Mentioned in his presentation that the ambition is to have a European wide onshore The business and the development of that. I just wondered how you look at the opportunities Of onshore in the context of offshore, given the growth in offshore is ever expanding and And growing and given your leading positions, how do you sort of select the allocation of the capital that way? And does this also mean, given the wider European onshore ambition that you will be looking at other things Coming up, clearly, Greencoat has recently talked about their possibility to sell further assets.
So any commentaries on that would be welcome.
Absolutely. No, happy to provide some comments to that. Clearly, we do not see onshore replacing any of our offshore ambitions. On the contrary, we actually have a clear ambition to be offensive On both the continued expansion of offshore, which we still expect to be the fastest growing technology within the renewable space in the coming years. And like you say, we have a very strong leadership position in offshore and we also have the strongest pipeline of projects, which we'll continue to expand And invest in at an unchanged pace, if anything more than that.
But as we're also expanding our CapEx program, we are we do see So we don't see a trade off and we are not doing any onshore expansion based on sort of defensive reasons that Orestel. This is a purely strategic expansion that we've been Looking for some time. And yes, and we will certainly we're not done here. As Dagla, we will come out in CMD on June 2. We expect to come out with updated ambitions.
And clearly, Onshore is a growth platform, and we also see that we are not at the end of the road with this Acquisition, we think that this can be a strong BII can be a strong platform for expanded growth also outside of UK and Ireland. But for now, for BI, the regional focus in the UK and Ireland is focused. But we clearly have European expansions beyond that, which we hope to materialize in the coming years.
And the next question comes from the line of Jon Musk from RBC. Please go ahead.
Erste. Yes. Hello, everyone. Perhaps a question for Declan. Just wanted to understand the age Of the operating portfolios, so the 3 27 Megawatts, obviously, in Ireland, we have The refit scheme, which is a 15 year feed in tariff, what's the average age of the portfolio and how many years of feed in tariffs do we have left?
Yes. For the operating portfolio, there You're looking at about an average of 5 years remaining in the underlying original subsidy contract. I'd say 2 things. 1, we have very firm views by virtue of the fact that U. K.
And Ireland power prices are very closely aligned and obviously we have very firm views on long term U. K. Power pricing. But also there is an Active market on the re contracting and the BRI team have successfully done that with some existing off subsidy stuff. So 5 years left on average in contracts and a market for re contracting and firm views of long term power prices is Really how we we're very comfortable wrapping our head around the fleet from the vintage viewpoint.
Okay. So the 13 times EBITDA though would obviously
Bill, it's obviously a day quoted is on the 2022. You're going to have a number of factors as the years play out, the growth, etcetera. Okay. Thank you.
And the next question comes from the line of Christian Johansen from Danske Bank. Please go ahead.
Yes, thank you. So just curious whether this company has any Planned exposure to the upcoming CFT auction in the UK considering that onshore is now a part of the CFT auction again. So
the we have Advanced development, the approximately 150 megawatts I mentioned in Scotland is largely contracted, but not Fully so. So there is potential to participate in that. It may well come a little soon It's probably a fair statement. So as regards the CFT or the Scottish Development, it's really about building out the under construction, the advanced development And with a view on a longer term development opportunity.
Understood. Thank you.
The next question comes from the line of Robert Pulliam from Morgan Stanley. Please go ahead.
Yes. Thank you. I think you've answered the question I was going to ask about asset allocation. So Can I just ask around the PPA market in Ireland for recontracting? You mentioned a couple of times it's quite active, But I think investors on the whole probably are not that well informed about that element.
So could you add a little bit more color around what counterparties are on offer there? What duration of PPA, where strike prices are to market price, etcetera, etcetera, just to flesh that out? Thank you.
Well, obviously, there's pretty limited detail on you really getting to the sort of core competitive advantage But to give a little more color, I would just say, we see a lot of overlap, as I mentioned, repeat customers from our both offshore Corporate customer base and our U. S. Onshore customer base are obviously very active in Ireland, particularly if you take the technology Company segment. On the recontracting, I would say that this is actually the range Erste, both in terms of years and structures. As I mentioned, one of the things we like, the many things we like about the BRI platform is their Track record in crafting offtake solutions and there is a range.
So it's In corporate broadly.
Okay. Thank you. And sorry, if I may just try a follow-up on that. In terms of the PPA duration Orestel. Do you have on the or you're looking at that have been re contracted already by BRI?
Could you just give an indication? I mean, is 5 years, 10 years, where that lands, if that's possible?
It's also commercially sensitive, I have to say. Okay. There's another is repowering. As we have mentioned, that's an interesting value lever here. So there's a commercial decision around how much you would choose to recontract versus where it sits in your workflow around Repowering.
So there are some core commercial proprietary commercial decisions that go into that.
Fair enough. Thank you for the color. I'll turn it over.
And the next question comes from the line of Mark Freshney from Credit Suisse. Please go ahead.
Hello. Thank you for taking my questions. Declan, can I ask View on where you see the LCOE in the UK except that every project is different, but The spectrum of projects is now increasingly moving into being economic on the basis of PPAs or Power Prices? So could you give us not specific to BRI, What you see and what your perception is there? Secondly, Yes.
The last time you stood up at the CMD 2.5 years ago, you spoke about PPAs in North America being 12 to 15 U. S. Dollars a Megawatt Hour with the benefit, I guess, of 100% PTC.
Orestel. So I think cutting across both Part of the question, we're really going to cover these types of issues more in the Capital Markets Day that's coming up Erste. In a couple of months around these key inputs, again, to the prior question, you get really at the heart of commercially sensitive stuff, so I wouldn't expect too, too much detail. And so I really wouldn't say, Anton, more than that around UK LCOE and competitive position relative to PSC, We have seen an improvement in pricing in PPAs across the board, The corporate segment and broader segment, and we feel an improvement in terms as well. So we're very happy with the evolution there.
But again, more details in the broader context will be we'll deal with the Capital Markets Day. Perhaps Marianne might want to add to that?
No, I think we will come back at CMD, so No further details for now.
And yes, sorry to be cheeky and ask a third question when I was restricted to 1, but I was Evidently put pretty low down the list. But Declan, I mean, the government, U. K. Government had to settle the bank's case By letting onshore wind and solar into the coming CFD round, clearly, a lot of pent up demand For support for solar and onshore wind in the UK. Your gut feel, how many gigawatts of onshore wind and solar goes into the CF Into the CFD round later this year, from your industry knowledge, not necessarily from your own book.
I wouldn't give a specific number on that because again that You are getting towards through commercially sensitive for all the reasons UK is that you have 2 options, a growing corporate market and process in both Ireland and the UK. So we like the fact that you're not just one or the other, Both exist in parallel.
Super. Looking forward to catching up in June 2.
And the next question comes from the line of Peter Bisztyga from Bank of America Securities. Please go ahead.
Yes. Thank you and good afternoon. So When RWE bought the Nordex development pipeline, they said that it would have taken them something like 10 years To organically build up that capability in France, which is the key market that we're targeting there. So I don't really understand how this acquisition will help you enter other European markets given that you need to build up Development and capabilities sort of ground up. And therefore, I guess, is it reasonable to expect that Given that you want to expand the European platform that we should expect more M and A like this in order to achieve that?
Thank you.
Yes. I would say 2 things. 1, And so we are obviously ambitious as we've touched on and we have we plan to be a major European player, but this team, this platform can deliver a value and meaningfully so in their In their core territory, shall we say. What I would add to that, that over the last year, as we've been evaluating A huge volume of opportunity on a Europe wide basis, and that really has led us to conclude that it's really useful to us To have the capability sets, as we've mentioned, that come on board with the BRI team, and it really adds more Tools in the toolbox for European Expansion. That's not to say we would preclude any further deals.
I think, as we always say to these questions, we're always open minded, but in this instance, in mirroring The LCE, it's our evolution in the few years after the deal. We don't feel under any particular or undue
Orestel. And if I may, Matt here, I can just supplement with what you're saying, Declan, that the BRI team has actually developed and sold off projects in other European territories as well. So it's actually a proven capability that they would have. It's not just something we hope for, it's something that they have actually shown possible.
Okay, that's helpful. Thank you.
And the next question comes from the line of Dan Togo from Carnegie.
Please go ahead.
Yes, hello. Just a question Regarding just a clarification question here to start with. The 13 times EBITDA, as I understand it, was on 22 estimated earnings. Could you maybe give indication of what the multiple would be on the 2020 earnings? And also, are there room for further sort of improvement of EBITDA either from additional costs being taken out and also when scaling up the business Just to see if returns can improve even further.
And also in relation to that, maybe some comments on how you view the risk Onshore versus offshore and the impacts on the value creation spreads, So to say, in your business between the two, are they very different how you depending on how you view the risk? Thank you.
Yes, we will should I take it, Declan? Or will you take the first part?
You go ahead, Marianne, please.
Yes. There's not a very big diff on the multi If you go to 2020, it has been quite a stable portfolio, so that's very similar. I will not say there's huge opportunity to take out costs because it is already a very optimized business. The growth will come through an increasing portfolio. And so that's the answer to that Of course, after 5 years, you will see some of the subsidies will no longer be there, But that is then compensated by growth.
Then on the risk for offshore versus onshore. Onshore is lower risk, no doubt about that. Smaller projects, less complex projects. So you will see in general a lower spread, but it varies between markets. In U.
S, with the PTC and the current market, you see very attractive For the onshore projects, and you see that Europe is somewhat more pressure On the margins in Europe, but we still think that we can find attractive and value creating projects. And these opportunities Orestel. The way has proven for us to be a good place to be, Ireland, U. K, where it's probably not as crowded as in some of the other Markets in Europe.
I'm just trying to also to understand the 7% to 8% implied return on invested capital here Still somewhat away from the 10% you target on the group level?
10% ROCE, That is an average show.
Yes.
And so you can't in a way use Indication for the rose on this in particular. That's it. Okay. Understood.
Okay. Thank you. And the next question comes from the line of Pujalini Ghosh from Bernstein. Please go ahead.
Hi. Thanks for taking my questions. So could you possibly give us a little bit more color Erste. The split of your upcoming pipeline between UK and Ireland, I think you said that it is skewed to larger projects in Ireland. But If you could just maybe give a bit more color on that.
And in terms of the IRR spreads, Am I I mean, did you just imply that it's about 7% to 8% ROIC That you are expecting for these onshore projects? I mean, Yes.
No, the last is not correctly understood. I think that Anne was referring to the Spread that we have announced for these portfolio projects in offshore. So we are not saying anything around spread here. And then Glenn, you could perhaps answer the first part of the question.
Yes. The pipeline, the 1 gigawatt Pipeline, the vast majority is Ireland. There is some Scotland also, but Erste. Fair to say that beyond the ready to build, which is more Scotland weighted than the next wave of focus would be Ireland For the existing pipeline.
Okay. Thank you. And Do you want to share some ROIC or IRR spread targets that you expect for the onshore pipeline?
No, you have to wait until the Capital Markets Day where we will come with some guidance on returns, but not for now.
Okay. Thank you. And the next question comes from the line of Elchin Mammadov from Bloomberg Intelligence. Please go ahead.
Thanks a lot. My question is again, I'm just trying to understand why you decided to start with the UK Island deal rather than, let's say, There are some developers that have less than 13x multiple that are, let's say, located in Spain, for example, Where you don't have to compete with exchange listed funds, renewable funds, for example, And where there is a massive pipeline of auctions coming up in addition to merchant project. So can you explain why you decided? I mean, you kind of started explaining it in your presentation. But I'm just trying to figure out why Ireland and U.
K. Rather than, let's say, Spain or perhaps buying someone who had portfolio, a developer with a Truly pan European portfolio because you know how to build the onshore capacity. What you're literally buying is Knowledge of the market, how the trading and optimization works and all the permitting, I guess. So wouldn't it be easier to buy someone with a more Diversified European Portfolio. Thank you.
Would you
keep that off, Teichlen?
Sure. Well, I would say, as I mentioned, we this is the result of a process that involves evaluating various European opportunities. So that's Both different geographic markets, more solar focused, wind focused, And European, which is a relatively small data set, I would say. And we really came to the view over Scale, etcetera. And so it's not to exclude other markets.
We'll be very much focused on making Success of this deal in the near term, but we see it as being complementary to and adding capability to Doing stuff in some of these other markets that are very much on the radar. And I'd also just elaborate on the fit and the integratability of The business is something Mad mentioned. We've done this a few times now. We feel we have a tested playbook And that very much factors in and made us comfortable that this was a really good place to start Versus some other, I would describe as more sort of complex sort of options, they remain Possible, but we felt balancing it all up, this was a really good place to start.
Thank you, Declan.
We have another question from the line of Emmanuel Turpin from Societe Generale. Please go ahead.
Thank you very much. You kindly provided us with the remaining average duration of the PPAs. I didn't catch The answer to the question about the average age of the fleet on average, how many years have they been in operation? And how many people are you onboarding with these transactions between development teams and commercial teams? And finally, On the 13 times EBIT to EBITDA, how much capacity are you valuing at end of 2022?
On how much is the CapEx to completion? Thank you very much.
10 years. And so 5 years of average remaining, there's a bit of a range, but those the average numbers, 10 years old and on average 5 years remaining contract life. And other customary adjustments to the purchase prices as was mentioned at December 31, 2020 valuation.
And then the number of people, Declan, the 70 people and
Yes, 70 people, the majority in the head office In Cork, in a small office in Edinburgh.
Thank you very much.
And we have one follow-up question from the line of John Musk from RBC. Please go ahead.
Yes. Thank you for opportunity to take part for another question. Just on the 1 gigawatt of development. Can you give us a rough idea of the time line of when that may come through? And I guess specifically, is Any of that going to be in the next res auction in Ireland, which I think has just been delayed to the start of 2022?
Erste. Starting with the second part first, yes, we will be a It's post 2025, as we've said, in the material. But I would want to get more Granular on the gigawatt pipeline at this point.
Okay. Thank you.
And as there are no further questions, I'll hand it back for any closing remarks.
Yes. And thank you very much for Great interest and great questions. Appreciate your time and we hope that you join our excitement with this acquisition. We're confident that despite its sort of not huge size that it is strategically a very, very important step Orestel. So thanks a lot and have a great day all.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.