The Macquarie Group-supported company involved in the development of a power plant in northern England is contemplating raising approximately £150 million ($188 million) from investors to commence operations in July.
MGT Teesside Ltd., the owner and operator of Tees Renewable Energy Plant, intends to secure the funds to enhance liquidity and cover various expenses, including debt obligations due in June. According to sources familiar with the matter, MGT is exploring different options, such as an infusion of equity, and is also in discussions with lenders regarding potential debt financing. One interested party considering an equity injection is EPH, led by Daniel Kretinsky, although a source with knowledge of EPH's position stated that the company is not interested.
When contacted for comment, representatives from EPH, Macquarie, PKA, and MGT Teesside declined to provide statements.
The discussions arise after numerous construction delays and setbacks faced by the project, including fires and boiler-related issues. MGT had to change contractors twice due to financial difficulties faced by Abengoa SA, initially partnered with Toshiba Corp., and subsequently due to timing issues with the consortium formed by Tecnicas Reunidas SA and Samsung C&T Corp.
If successful, the power plant would have a capacity of 299 megawatts, making it one of the world's largest biomass-fueled facilities. Biomass as a fuel source has faced increasing scrutiny from environmental activists regarding its sustainability credentials. Currently, biomass accounts for approximately 10% of the UK's electricity production, primarily generated by Drax Group Plc's former coal station in Yorkshire.
The £150 million fundraising target represents the higher end of the required range to ensure the company does not need to seek additional funding in the near future, as per the sources. Shareholders injected an additional £100 million last year to complete the project, as stated in the earnings report for the fiscal year ending March 31, 2022, the most recent available data.
Crucially, Tees REP, like other biomass-fired power plants in the UK, benefits from a contract-for-difference subsidy agreement. This agreement guarantees an almost £150 per megawatt-hour subsidy for the power generated, with the subsidy funded by consumer bills. Without this subsidy, the plant would operate at a loss.
To maintain the subsidy agreement, the plant underwent a successful 10-day test in October, operating at 80% capacity. Since then, the company has focused on completing the necessary work to commence energy production in July, according to insiders.
As of the end of March 2022, the company's debt stack amounted to £945.3 million, with £77.8 million maturing within a year and £191 million coming due within a one-to-five-year range, according to the latest available earnings report. Initially, the first payments on the senior loans were due in 2020 when the plant was expected to be operational. However, due to technical difficulties and the pandemic's impact on timelines, the company reached an agreement with its lenders to delay the payments.
