Blackstone Group LP’s reboot of an idled Dutch natural gas-fired power plant this week underlined investor appetite for the unwanted assets of some of Europe’s biggest utilities.
The Rijnmond station in Rotterdam sold electricity on Monday for the first time since the world’s biggest private equity fund bought the bankrupt facility last year. Utilities such as Germany’s RWE AG and Engie SA in France are still keeping some plants shut because they aren’t profitable.
Power companies across Europe have shut, sold or spun off gas and coal-fired stations as the surge in wind and solar energy make the units too costly to run profitably, putting them on the radar of investors willing to bet they’ll be needed as conventional plants close. A foretaste of this came last winter when power prices spiked as cold and windless weather coincided with unseasonable nuclear reactor halts in Germany and France.
“For investors, it always comes back to the theme of distressed assets,” Johannes Wetzel, an analyst at Wood Mackenzie Ltd. in London, said by phone. “If an asset can be bought at a low price and you can monetize the plant over time, then it can make sense to buy those portfolios.”
Blackstone’s GSO Capital Partners bought Rijnmond, a 790-megawatt facility built in 2004, in April last year for an undisclosed sum. The plant “is in excellent condition and will benefit from considerable future operational capacity,” according to Blackstone.
“They believe that in the coming winters it’s going to pay off, that it can run at a profit,” Cyriel de Jong, a director at consultant Kyos, said by phone from Haarlem, Netherlands. “It is a really good bet, depending on what they paid for it.”
Blackstone isn’t alone in picking up European power assets. Last month, U.S. energy trader Castleton Commodities International LLC bought a gas-fired plant also in Rotterdam, its first asset purchase in Europe. Stamford, Connecticut-based Castleton is also bidding for French utility Engie SA’s portfolio of U.K. gas and coal assets, two people with knowledge of the matter said in May. Other bidders include private-equity firm Energy Capital Partners LLC.
Josh Steiner, head of industry verticals at Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Castleton.
Private-equity firms use their capital to directly invest into private or public companies, often financing acquisitions using a combination of their own equity and debt and typically holding their businesses for five years. Blackstone invests its capital through a number of channels including private equity, infrastructure and credit.
Unlike utilities that aim to sell as much electricity from their stations as possible, energy traders think of them as an arbitrage option, according to Wetzel at Wood MacKenzie. For example, if they had a liquefied natural gas cargo, they would consider whether it was more profitable to sell it in the market before burning it in their plant.
The appeal of burning natural gas for electricity improved this year as prices for the fuel declined when coal prices rallied. The profitability of Dutch gas-fired power plants next year has climbed to the highest since December, rising above break-even levels on Friday, according to a gauge known as the spark spread.
Engie still plans to close one Dutch gas plant next year, according to filings at the European Energy Exchange, while RWE mothballed, or temporarily shut, two stations in the Netherlands until 2019 and plans the same with another two next year.
The cost of mothballing and the size of the plants are important when considering whether to return to the market, according to RWE.
“It’s not economical to run the plants, that’s our view on the market,” Lothar Lambertz, a spokesman for RWE, said by phone. “We may change our opinion when we see light at the end of the tunnel, but it’s too early for that now.”