Italian energy group ERG is to buy German utility E.ON’s Italian hydroelectric power plants for about 950 million euros ($1 billion), expanding its renewable portfolio which mostly comprises wind farms.
E.ON’s Terni Hydroelectric Complex, which has 527 megawatts (MW) of generating capacity and produces about 1.4 terawatt hours of electricity a year, was put up for sale in late 2013 along with other assets in the country.
ERG currently operates wind farms in Europe with a total capacity of 1.38 gigawatts, including 1.1 gigawatts in Italy, as well as a gas-fired thermal plant in Sicily with a capacity of 480 MW.
Through the acquisition, whose 1 billion-euro price tag is in line with what sources familiar with the matter said earlier this year, the former oil refiner continues its transformation into becoming a specialised renewable energy company.
“The acquisition will enable a significant improvement in our economic results and cash generation in the medium term,” ERG Chief Executive Officer Luca Bettonte said in a statement.
The acquisition comprises 16 hydro plants, one pumping station, seven large dams and three reservoirs, 22 weirs and 155 kilometres of channels and tunnels.
ERG said the business was expected to generate annual earnings before interest, tax, depreciation and amortisation (EBITDA) of about 110 million euros “over the next few years”.
In 2014 ERG’s total EBITDA stood at 547 million euros, up 43 percent from a year earlier.
The transaction will be financed via cash and a 700 million-euro loan signed with seven banks including Barclays, BNP Paribas and Unicredit. It is expected to close at the end of the year.
For E.ON, the sale follows the disposal of its Italian coal, gas and solar generation capacity as well as its operations in Spain, effectively ending an ill-fated foray into southern Europe, where it spent heavily on acquisitions over the last decade.
E.ON spent 11.5 billion euros on acquiring mostly thermal generating capacity in Spain, Italy and France in 2007 in the expectation that the appetite for energy would grow strongly in those countries.
That failed to materialise due to the sovereign debt crisis, forcing E.ON to write down nearly half of the assets.
E.ON, which is currently in the process of spinning off its power plants into a separate unit, Uniper, said it would keep and further develop its power and gas sales business in Italy, which supplies about 700,000 customers in the country.