Aker has restated its commitment to the renewables market, despite booking a €370m impairment to Mainstream, a portfolio company of Aker Horizons, and its Andes pipeline.
An important priority for Aker Horizons in the near term is working closely with its portfolio company Mainstream related to challenges being experienced in the Chilean market, where the lack of flexibility of the power transmission system has caused significant headwinds said the company.
During the second quarter 2023, Mainstream booked an impairment of NOK4.2bn (€370m) net of tax related to its Andes portfolio, reflecting continued uncertainty and ongoing restructuring.
Mainstream experienced certain events of default under the financing facilities related to the Andes portfolio and is in active dialogue with lenders on the long-term capital structure for the portfolio Aker said.
He company stated there is continued uncertainty and challenging conditions in the Chilean power market. Mainstream’s diversified portfolio, with both wind and solar power production in the north and south of the country, together with the finalizing of new projects, helps to mitigate the impact, it added.
Mainstream is continuing to actively pursue a mitigation strategy for the impairment, said Aker, adding there is still uncertainty but Mainstream is engaged in discussions with lenders regarding the restructuring of the Andes Renovables portfolio, consisting of the three Cash Generating Units (CGUs) in the platform – Condor, Huemul and Copihue.
Impairment tests of these CGUs have been performed, and main assumptions used are: that
the recoverable amount has been determined based on fair value less cost of disposal. The carrying value of the CGUs is calculated as the sum of allocated contractual assets, PPE and working capital items, reduced by deferred tax on the items included in the CGU.
The cash flows for the electricity sold through the projects in the Andes Renovables platform are based on long-term power purchase agreements (PPAs) ending in 2041/2042. Power generation in excess of committed PPA volume, and after expiration of the PPAs, are based on spot sales throughout the useful life of the assets.
The power prices and generation assumptions assumed in the calculation of recoverable amount are based on available market data from external third-party market analytics and Aker Horizons’ long-term market outlook. No terminal value is assumed for the power plants.
The recoverable amount in the impairment test has been calculated by applying a discount rate of approximately 6%, reflecting an assumption of an optimized long-term capital structure in line with historical practice.
Impairment losses of NOK4.2bn, net of tax, on contractual assets and property, plant and equipment related to the Andes portfolio, reflect continued uncertainty and the ongoing debt restructuring.
The recoverable amount used in the impairment test is sensitive to changes in the discount rate. Sensitivity analysis shows that an increase in the discount rate of 0.5 percentage points would result in an increased impairment charge of NOK1406m across the Andes Renovables portfolio.
Goodwill related to the Mainstream acquisition in 2021 amounts to NOK1.4bn. The goodwill relates to Mainstream’s development pipeline, combined with its global organization, and is allocated to the Mainstream segment for impairment testing.
An impairment trigger test has been carried out. As a result of an overall analysis, no impairment indicators have been identified.
Despite these problems, however, Aker has reiterated its commitment to renewables.
“The current market environment, forces industry players across the globe to reckon with the fact that the energy transition is capital-intensive, infrastructure-reliant, and requires strong public-private collaboration. Not unlike our peers, we have hit snags in the build-up of our renewables business, however we remain confident that the industry is poised for promising growth,” said Aker president and chief executive Oyvind Eriksen.
“I am encouraged to see such strong operational performance in the ‘bread and butter’ of our portfolio, including Aker BP, which recorded record high production in the second quarter, and Aker Solutions, with a robust order intake and revenue projections,” Eriksen added.
“Going forward, we will continue to play to our strengths, making the necessary strategic adjustments, both to meet existing investor expectations and to seize new opportunities for long-term growth.”