UKPR to come to market as owners mandate RBC for sale

Equistone and Inflexion have appointed RBC to manage the sale of reserve power company UK Power Reserve (UKPR), a source close to and a source briefed on the situation said.

It is unlikely the sale will launch in the near term, the close source said. There is an Ofgem review of embedded benefit payments ongoing, the results of which will help buy-side parties ascertain the future of UKPR, the source close added.

Ofgem expects to publish a minded-to decision and draft impact on the code modifications for consultation in early 2017, with a final decision following after that in time for any changes to be implemented by April 2018, according to its most recent letter regarding the review, from December last year.

The company targets EBITDA of GBP 40m-GBP 50m over the next two to three years, the source close said, confirming a December report by this news service quoting UKPR chief executive, Tim Emrich.

UKPR’s portfolio stands at 813 MW with around 250 MW online now and 533 MW expected by June 2017. The full 813 MW is due online by October 2018.

Equistone and Inflexion acquired UKPR in 2015 and committed to finance the development of 533 MW reserve capacity.

UKPR acts as a firehouse for electricity services in the UK, Emrich said. The influx of renewable energy has reduced the dominance of the Big Six and created a requirement to balance the network, he said.

The target will interest both strategics, such as utilities, and financial investors, the source close said. Financial investors could include both private equity investors and infrastructure funds, they added.

Power market-focused funds such as I Squared Capital and 3i [LON:III] are likely to be the typical investors interested in this asset, a banker following the situation said.

I Squared acquired Irish energy firm Viridian from Arcapita for around EUR 1bn last March, according to reports last year. In December 2016, 3i bought Infinis‘ landfill gas business from Terra Firma for GBP 185m, as per press reports.

In terms of utilities, Drax [LON:DRA] could be a likely interested party, the banker following added.

While Emrich agreed Drax could be a complementary buyer in a previous interview with Mergermarket, he said the two companies work in different segments.

Elsewhere, UKPR could be an opportunity for a non-domestic utility to enter the UK market, he said. Companies with trading operations and no generation assets, or another set of financial buyers could be interested, he said.

Those with large portfolios outside this niche, and those that want an additional and varied generation portfolio could be attracted to UKPR, he said. But it is hard to imagine the Big Six making such a diversifying move, he said.

However, Centrica [LON:CAN] is looking to develop small-scale plant, so there are some, albeit a limited number of large utilities looking to diversify, he said.

UKPR operates a flexible portfolio of gas-fired power plants and battery storage, as well as teams focused on finance, O&M, trading and contracting, and project development and delivery, he said.

RBC, Equistone, Inflexion and UKPR declined to comment.