Accelerating earnings growth with plans to transform BayWa r.e. into an independent power producer (IPP) with a total production capacity of up to 3GW in the medium term.
BayWa has been signaling for a while now the need to access capital via a new partner to make the most of the existing growth in the market for renewables energy. It’s come through on those overtures, announcing that Energy Infrastructure Partners (EIP, previously Credit Suisse Energy Infrastructure Partners) will Have a 49% stake in the team’s renewables company unit, BayWa r. e., for a total consideration of $642m.
Together with our green bond successfully placed in 2019, we have thus acquired €1.03bn in less than two years on the capital market for the renewable energies business unit.
Klaus Josef Lutz, CEO of Baywa AG
Renewables already the company’s growth driver
Sales of completed energy projects doubled year-on-year in FY19 from 453MW to 912MW, including 12 free-standing solar parks with a total output of 620MW, a floating solar park of 8MW along with ten wind turbines with a combined output of 283MW. Projects spanned multiple continents, including Australia, Europe, Mexico and the US.
At The end of FY19, the division also had 8GW of capacity under control. FY19 Segmental sales rose by 29% to a record $1,975.3m and EBIT by 39 percent to a record $101.1m, 54% of the group total. Management anticipates 2020 project sales to total about 0.9GW, encouraging segmental EBIT at comparable levels to FY19.
Transaction accelerates renewables expansion
The International Energy Agency calculates that for the energy industry globally to reach net-zero emissions by 2050, new solar PV installations will need to grow from 110 GW annually to almost 500GW and power sector investment to triple from $760bn to $2,200bn. However, participating in this expansion is capital intensive, with BayWa investing an average of $1.5bn in the segment during FY19, 33% of the group’s total. Management anticipates the EIP investment will enable BayWa r.e.to scale up the project business to 3GW of project sales from 2025 onwards.
The capital will also enable BayWa r.e. to develop its independent power provider activity, creating a recurring revenue stream from contracts to provide electricity from 2022 onwards. Management projections show that this activity will represent 23 percent of segmental revenues by 2023 and earnings of 56%, Contributing to a segmental EBIT of over $170m. By 2028, management intends to be selling approximately 3GW power per year from its power generation resources.
Market Reaction
Public market reaction was positive, up 8%, with continued lift in the past week:
