Obton to accelerate 5GW-plus growth plan following FSN Capital investment – CEO

26 January 2021 - 01:24 pm UTC

by Karin Jensen

  • Business model to remain largely unchanged
  • Obton expects investment level of more than EUR 1bn in 2022
  • To close next funding round by end-2021

Obton, the Danish solar energy investment and development company, will accelerate its plan to build a more than 5GW portfolio of assets within three years following a recent investment by FSN Capital, CEO and co-founder Anders Marcus told Mergermarket.

 

In December 2020, FSN Capital announced it was acquiring a 45% stake in Obton for an undisclosed sum and was entering into a partnership with the founders and management, as reported. The transaction, which is subject to authority approval, is expected to close in March, Marcus said.

 

The 5GW target will include operational assets as well as Obton’s greenfield development pipeline, the CEO said. Obton, which invests in several solar energy projects each year through its various funds, is aiming is to reach an investment level of more than EUR 1bn in 2022 in both greenfield and brownfield projects, with an emphasis on the former, the CEO said.

 

The company’s business model will remain largely unchanged following the investment, but the size of projects in the solar sector is increasing and FNS’s support will allow Obton to acquire and/or develop much larger projects, Marcus said.

 

The company always mandates external advisors with local knowledge for its transactions, both legal, technical, and financial advisors, the CEO said.

 

Obton invests in both ground-and-roof-mounted solar energy projects, he said. The size of the projects in which it invests varies, the CEO said. Large-scale solar projects are attractive, but competition is also very high, he said, adding that smaller projects are also attractive for Obton, which has extensive experience in lowering costs and running solar projects efficiently.

 

If Obton acquires smaller projects, these will typically be pooled into one transaction, which is rarely below 15MW in total, he said.

 

The solar energy market is growing significantly as renewable energy increasingly replaces fossil fuels, the CEO said.

 

The cost of establishing solar energy plants has dropped significantly in recent years, making it one of the cheapest energy sources, he added. While many early solar projects relied on government-backed subsidies, many projects are now based on revenue from power purchase agreements (PPAs) – long-term contracted electricity offtake – or with significant merchant power exposure, Marcus said.

 

Obton recently acquired a 180mw solar project in Canada, which was entirely based on a PPA, he said adding PPA-based solar energy projects will be more common going forward as solar energy prices are very low and many manufacturing companies are keen to gain a green profile.

 

Merchant power exposure – selling electricity on the open market – is also becoming more widely used, but is more difficult to finance because of its higher risk, Marcus said.

 

Obton prefers projects where a large proportion, 70% to 80%, for example, of the revenue is guaranteed through subsidies or PPAs, with the remaining offtake exposed to potential merchant power risk upside.

 

Some of its other recent acquisitions include the purchase of a portfolio of 51 photovoltaic farms in Poland with a total capacity of 46MW, announced in January 2021 and in which Bird & Bird advised on the financing of the acquisition. Also in January this year, Obton acquired a Hungarian portfolio of 12.3 MW projects from ReneSola Ltd [NYSE:SOL] for an undisclosed sum, as reported.

 

In December 2020, E2E Power, the Italian renewable energy multiutility company, sold a 32.5MW Italian solar portfolio to Obton, as reported. The sale was expected to see a deal value of around EUR 100m, as reported by Mergermarket.

 

And in November 2020, Obton acquired a portfolio of 23 Italian solar energy plants from Eos Investment Management, as reported. In late 2017, Obton acquired the French developer Coruscant for an undisclosed sum, as reported. Obton will be interested in further buys of developers and is continuously looking at opportunities, Marcus said.

 

Fundraising and beyond

To fund its investments Obton raises capital from high-net-worth individuals and institutional investors, Marcus said, adding it closes a new fund roughly every two years.

 

Its most recent fund was closed just under a year ago and is fully invested, the CEO said. In total, DKK 8bn (EUR 1.06bn) was invested across 200 solar energy projects in nine different countries, he said.

 

The invested amount comprises equity deployed from its fund as well as debt financing provided by banks, he added.

 

Obton is in the process of raising its next fund, with close expected by the end of 2021, the CEO said, adding that several solar projects have already been acquired under this fund.

 

The planned investment level of the fund is DKK 12bn (EUR 1.61bn), of which DKK 3bn will be funds raised from investors and the remaining DKK 9bn will be project financing from banks, he said.

 

Obton, which was founded in 2008, is today the ninth largest administrator of solar power plants in Europe, Marcus said.

 

The target is to grow revenue by at least three-or-four times over the next four-to-five years, the CEO said. It will look to increase its number of employees from 200 to 300, he added.

 

Obton does not disclose revenue but for the full-year 2019, it posted gross profit of DKK 211.9m (EUR 27.3m) and an operating profit of DKK 145m, according to its annual report. 

 

Today, Obton is heavily exposed to the European markets, with its largest markets being The Netherlands, France, Germany, and Italy, the CEO said. It is also present in new markets in Eastern Europe such as Poland and Hungary, and has recently established offices in Canada and Australia, he said.

 

Ireland is another market where Obton has recently gained a strong foothold, the CEO said. In August 2020, Obton and its Irish joint venture partner, Shannon Energy, were awarded all 11 solar energy projects for which they had submitted applications in the first round of the Irish government’s Renewable Electricity Support Scheme, according to its website.

 

In future, Obton will focus on a number of core markets, perhaps up to 10 jurisdictions, wherein it will be very active, Marcus said.

 

Obton has not developed a strategy designed for FSN to exit its investment, as this will depend on talks with FSN Capital once its acquisition is closed, he said, adding Obton and FSN Capital will then agree a growth strategy together.

 

However, an exit may be a possibility in three-to-five years and there are various possibilities, including an IPO and a trade sale, he said.