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Sustainable Development Capital Energy Efficiency Income Trust (SEEIT): Investment in US industrial energy efficiency portfolio

Published: 25 March 2020 - SDCL Energy Efficiency Income Trust

SDCL Energy Efficiency Income Trust plc, the first UK-listed investment company of its kind to invest exclusively in the energy efficiency sector, has agreed to acquire a 50% interest in Primary Energy, a portfolio of recycled energy and cogeneration projects located in Indiana, USA, from a consortium led by Fortistar LLC (‘’Fortistar’’) for an equity cash consideration of approximately $110 million.

The 298MW portfolio consists of five operating projects which generate low-cost, efficient energy: - three recycled energy projects, one natural gas combined heat and power project and a 50% interest in an industrial process efficiency project. 

The portfolio projects are located within the Indiana Harbor Works, which comprises the Indiana Harbor Works East and Indiana Harbor Works West steel mills, two of the most efficient and advanced steel mills in the United States, owned by ArcelorMittal S.A. and Midwest Steel mills (a subsidiary of United States Steel Corporation) respectively. The projects are fully integrated into the steel mill facilities, including fuel handling and emissions control equipment and systems that are critical for the operations of the facilities.

At completion, the existing investor consortium will continue as a 50% shareholder in the portfolio alongside SEEIT. Operations and maintenance on the portfolio will continue to be carried out in-house by Primary Energy, as well as in partnership with the steel mill owners that are the off takers for the projects. Primary Energy also benefits from a project development pipeline involving recycled energy and energy efficiency projects with industrial clients, in which SEEIT will have the opportunity to participate.

Portfolio revenues are contracted via long-term offtake agreements with the steel mill owners, with an average remaining contract life of c.10 years. The majority of revenues are sourced from investment grade counterparties. The strong environmental benefits of the assets qualify the projects for Renewable Energy Certificates which are equivalent to those generated by 536 MW of solar or 374 MW of wind projects. Returns from the portfolio are expected to meet SEEIT’s total returns targets and further support its progressive dividend policy.

The acquisition is to be funded through existing cash reserves, including the capital raised in the recent equity fundraisings. Existing project debt finance facilities of approximately $206 million will remain in place post acquisition. The relevant proportion of these facilities will be taken into account in the calculation of SEEIT’s own gearing ratios and borrowing restrictions.

Completion of the acquisition is expected in the coming weeks, subject to the satisfaction of certain customary conditions and consents.

Commenting on the acquisition, Jonathan Maxwell, CEO and Founder of Sustainable Development Capital LLP, said: “This opportunity involves a portfolio of industrial energy efficiency projects with strong environmental benefits. The portfolio includes projects that recycle energy from waste heat and gases from steel mills that would have otherwise been vented and also generates efficient combined heat and power. The projects are able to produce energy at a cost that is lower than the marginal price of alternative energy sources. This investment in a proven operational portfolio further diversifies SEEIT’s portfolio, in terms of geography, technology, counterparty and application. We are confident that this portfolio will make a significant contribution to SEEIT’s total returns.’’



 
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