IFM sells Victorian power stations as it turns away from fossil fuel generation

The Australian fund manager has sold EcogenEnergy, an asset that has generated a 12%-plus return.

IFM Investors has sold its 100 percent stake in power station operator EcogenEnergy, which owns two gas-fired power plants in Victoria, to retailer EnergyAustralia for A$205 million ($157.7 million; €128 million).

Speaking to Infrastructure Investor, Kyle Mangini, IFM Investors’ global head of infrastructure, said the company had received “deep, but not broad” interest in EcogenEnergy from potential buyers, explaining that its gas-fired power stations are a specialised asset that would only fit in certain portfolios.

Mangini said the sale had been timed to take advantage of a spike in energy prices, which IFM forecast.

“We had a good experience with this asset, and they’re relatively old now, which played into the decision,” he said.

According to Herbert Smith Freehills, the law firm that advised IFM on the sale, Ecogen has provided an equity return in excess of 12 percent over the life of the IFM investment.
The Australian manager first invested in Ecogen in 2003, acquiring 27 percent ownership. In 2008, the fund manager bought the remaining 73 percent from Babcock & Brown for A$87 million.

“When we bought Ecogen from Babcock, we acquired the asset at quite an attractive price. We felt the energy market [and its prices] would spike, and it has. We could have waited, but we would have likely divested the asset before the end of our contract with EnergyAustralia anyway.”

EnergyAustralia has had an offtake arrangement with Ecogen since 1999 that expires in 2019 and accounts for 95 percent of the energy generated by the plants. IFM was less interested in operating the plants on a merchant basis after the arrangement expired, Mangini said, adding IFM would still look at power generation assets on a contracted basis, but was unlikely to do anything on a merchant basis.

On fossil fuel power generation more generally, Mangini said that this was becoming increasingly less attractive as a long-term investment proposition, particularly investment in coal-fired power stations. “Coal is an energy source we’re going to transition away from,” he said. “It’ll have a role for a period, but I struggle to see how it works for a long-term investment or how it’s a good investment for our two funds.”

EcogenEnergy owns Newport and Jeeralang gas-fired power stations, which have a combined capacity of 950MW, accounting for up to 9 percent of Victoria’s energy generation capacity.

The Newport plant in Melbourne is a 51 MW-capacity single unit while Jeeralang, in the Latrobe Valley, has seven units with 440 MW total capacity. The facilities are intermediate and peaking plants, which are generally brought into operation when demand is high or as short-term replacements while other plants are serviced.

The deal is expected to complete in the second quarter of 2018, EnergyAustralia said in a statement.