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Case study NGK/Småkraft, hydropower

In 2014, Aquila Capital acquired 100% of Norway's second largest small-scale hydropower company, Norsk Grønnkraft AS (NGK). In the following year Aquila Capital also acquired 100 % of Norway's largest small-scale hydropower company Småkraft AS (SK). With these two investments, comprising now 100 small-scale hydropower plants with an annual electricity production of approximately 1 TWh, Aquila Capital became the largest small-scale hydropower operator in Europe.

 

The merger
The merger

Aquila Capital pursues an active management approach in its hydropower investments. In order to optimally position the companies for further growth, NGK and SK have been merged into one company. The merger was completed at the end of 2017.

The merger brings a host of benefits

  • The merger reduced redundancies and thus significantly reduced operating costs.

  • By bundling the two hydropower plant portfolios, this portfolio is even more diversified. Both existing and future investments are made in areas with different hydrological and topographical profiles and spread over different price regions.

  • Especially the reduction of the financing costs is remarkable and shows a further advantage of the future larger society: The bargaining position opposite banks, insurances and service providers is strengthened.

The merger
Further growth
Further growth

Aquila Capital has set itself the goal to double electricity generation from its hydropower portfolio in Norway by 1 TWh p.a. to 2 TWh p.a.. Aquila Capital has exclusive access to a pipeline of projects with a projected annual production of approximately 650 MWh to be completed by 2022 with the remaining 350 GWh from esternal market acquitisions.

There are many indications that the region will continue to be very attractive for hydropower investments.

  • Modernization and expansion of electricity grids: In order for energy suppliers to meet the capital requirements for investments in electricity grids, sales of generating units are being considered.
  • Decommissioning of Swedish nuclear power plants: The de-commissioning of nuclear power plants leads to a high cost burden for some of the major energy suppliers. Furthermore, this will reduce the supply of electricity, which will further increase the demand for renewable energies.
  • Interconnector construction: Several new interconnectors are leading to supply stability and increased demand, especially in the southern regions of Norway. With the expansion of interconnectors, analysts expect the trading capacity for the northern region to double by 2030. Electricity prices in continental Europe tend to be higher than those of Norway, so electricity can be exported more expensively.
  • Increasing electromobility and the expansion of data centers as digitalisation progresses will all cause the demand for electricity to rise. Norway has with its National Transport Plan the goal to increase the market share of electric cars to almost 100% by 2025.
  • Use of hydrogen in blast furnaces: In order to reduce CO2 emissions, blast furnaces will increasingly use hydrogen instead of coal. Electricity is needed for this process. Preliminary estimates by Vattenfall show that, in order to convert to hydrogen, the additional demand for renewable electricity in Scandinavia could reach up to 20 TWh per year.
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