Engie Sells Australia's Loy Yang Coal Plant to Alinta

Updated on
  • Deal follows Engie closing nearby Hazelwood facility in March
  • The Australian reports purchase worth about A$1.2 billion

Engie SA and Mitsui & Co. agreed to sell the Loy Yang B coal power plant in Australia’s Victoria state to Alinta Energy Holdings Ltd., boosting the Hong Kong-owned utility’s exposure to the fossil fuel.

Alinta’s owner, Chow Tai Fook Enterprises Ltd., entered into a conditional binding agreement to buy the 1,000-megawatt station on Thursday, the company said in an emailed statement, confirming a report on the sale. The Australian reported earlier Thursday the deal was worth about A$1.2 billion ($914 million), without saying where it got the information.

The deal “adds modern, reliable and efficient baseload generation of scale to our portfolio,” Alinta Chief Executive Officer Jeff Dimery said in the statement. The plant will continue to be managed by Engie until the deal is completed, Alinta said.

The transaction furthers Engie’s strategy to divest coal, oil and gas assets worldwide as it seeks to rekindle growth dented by falling gas and power prices by reinvesting in energy services, renewables and gas pipelines. After the sale, due to be completed in the first quarter of 2018, coal will represent 6 percent of its global power production capacity, less than half the share at the end of 2015, the company said.

The transaction will cut the French company’s net debt by 666 million euros ($789 million), Engie said. Earlier this month, the utility announced the sale of its upstream liquefied natural gas assets for $1.49 billion, putting it 83 percent of the way to achieving its 15 billion-euro divestment target for the 2016 to 2018 period.

Read more: Why resource-rich Australia is struggling to keep the lights on

For Alinta, acquired in March by Chow Tai Fook, the purchase comes amid volatility in Australian wholesale gas prices that’s piled pressure on energy markets.

Alinta will take ownership of Loy Yang B at a delicate time for the nation’s electricity market. The decision by Engie and Mitsui to close its 1,600-megawatt coal-fired Hazelwood plant in March, also in Victoria, led to tightening power supplies and a surge in demand for other coal-fired stations. It also sparked a new government rule for generators to give at least three years notice before closing to reduce volatility. Prime Minister Malcolm Turnbull recently rebuked AGL Energy Ltd. for its plan to retire the Liddell plant in 2022 over concerns about blackouts in New South Wales state.

After ditching a proposed clean energy target, Turnbull is now pinning his hopes on the government’s national energy guarantee to bolster the reliability of Australia’s faltering electricity grid. The plan would require generators like Alinta to guarantee reliable supply and lower emissions.

The 24-year-old Loy Yang plant in Victoria’s Latrobe Valley, 160 kilometers (99 miles) east of Melbourne, is 70 percent owned by Engie and 30 percent by Japan’s Mitsui. It supplies about 17 percent of Victoria’s power, with coal sourced from the open cut Loy Yang mine. The larger 2,210-megawatt Loy Yang A power station is owned by AGL Energy Ltd.

— With assistance by Francois De Beaupuy

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