Endesa seeks partner for a $2 billion renewable macro-grid portfolio

Endesa is looking for a partner for its renewables. The utility has entrusted Santander and Intesa San Paolo with the sale of a minority stake in a renewable macro portfolio, according to financial sources. The portfolio for sale totals some 2 GW of power and is valued at around 2 billion euros.

In recent months, renewables have been a huge shield against the standstill in the mergers and acquisitions (M&A) market. It has been the only sector in which deals have been crossed despite rising inflation, fears of recession and increases in interest rates and, therefore, in financing costs. A key transaction in this context was the sale of a 49% stake in Iberdrola's renewables portfolio in Spain, the so-called Romeo Project, to Norges Bank for 600 million.

A transaction that was considered by the market as a complete success. And which its competitors are now trying to replicate. Repsol has also put up for sale a minority stake in a renewable portfolio of 600 MW. Iberdrola itself is negotiating with Norges to extend its alliance by a further 500 MW. Similarly, some smaller firms, such as Grenergy, have done the same.

Next on the list is Endesa. The company controlled by the Italian Enel, however, stands out for designing a much larger operation than those carried out by its competitors. Its roadmap involves looking for a minority investor to take up to 49% of a portfolio of around 2 gigawatts of green energy production.

The company is still working on the details of the transaction and on delimiting the perimeter of the projects to be included. The sources consulted suggest that it will include both projects in operation and under development, mostly photovoltaic, and even some PPAs. The first valuations handled by the investment banks are around 2,000 million euros for the total portfolio, of which Endesa would receive around 1,000 million euros.

Strategic plan

The electricity company has placed growth in renewables at the center of its roadmap. In the strategic plan to be fulfilled before 2025, investment will increase by 15% to 8.6 billion, of which half, 4.3 billion, will be dedicated to renewables. The objective is to reach 13,900 MW of capacity by the end of the period, 51% more than the figure for the end of 2022, by adding 4,400 MW of solar and wind power capacity (3,000 MW and 1,000 MW, respectively). The plan includes another 200 MW in storage. Longer term, the goal is to reach 46 GW by 2040, which would allow it to be a carbon-free company.

The search for partners to enter into certain projects is one of the ways to finance these aggressive growth projects. This is the lever chosen by Iberdrola not only in the case of the Romeo Project, but also with the entry of investors with minority stakes in the Vikinger and Baltic Eagle offshore wind farms, where it has brought in EIP and Masdar. It has currently engaged Goldman Sachs to sell a minority stake in its northern Scottish wind farm. In the case of Repsol, it has sold a stake in the Delta wind farm and in Kappa solar and to TRIG, Valdesolar.

In the case of Endesa, the company expects to finance part of this growth in renewables with the money obtained from this operation, some 1,000 million. And the rest through debt. In the strategic plan, the company targeted an increase in net debt between 2022 and 2025 from between 10,000 and 10,500 million to between 11,600 and 12,100 million euros. The debt-to-EBITDA ratio will increase from 1.9 times to 2.1 times. It is also considering divesting assets, such as its gas business to companies, which it put up for sale months ago.

Endesa currently has 9 gigawatts of renewable projects, of which 480 MW are under construction. It has just over two gigawatts of photovoltaic energy, in addition to 4,800 MW in hydroelectric and 3,000 MW in wind power. It has a total of more than 300 operational plants throughout Spain, through its subsidiary Enel Green Power.

As Iberdrola did with Norges, one attraction for Endesa to make this transaction is to find a partner to develop its renewables in the long term. In other words, a financial investor that will give it the muscle to meet its objectives and with which to partner on more projects in the future.