Scottish and Southern Energy has acquired Ireland's leading renewable energy giant Airtricity in a deal worth E1.46 billion. While the buyout deal is the latest in a string of 'green' corporate investments, the financial viability of the acquisition is yet to be tested, and alternative renewable resources and underlying uncertainties in the UK's energy markets could threaten wind power strategies. ...However, the financial implications of wind power expansion plans are not yet clear. The landscape of the European energy markets is changing rapidly and it is possible that wind power could be replaced by competing technologies and fuels. An obvious threat to wind power investments will be the decision on new nuclear plant builds. Wind power could also be undermined by extensive investments in alternative renewable energy sources. Furthermore, while the price and allocation of carbon permits under the EU Emissions Trading Scheme is a major driver behind wind power investments, if prices were to collapse as they did in 2007, this could spell trouble for investors and shareholders alike.

Scottish and Southern Energy has acquired Ireland's leading renewable energy giant Airtricity in a deal worth E1.46 billion. While the buyout deal is the latest in a string of 'green' corporate investments, the financial viability of the acquisition is yet to be tested, and alternative renewable resources and underlying uncertainties in the UK's energy markets could threaten wind power strategies.

Airtricity, Ireland's largest wind farm operator, was recently acquired by the UK's second largest power producer Scottish and Southern Energy (SSE) in a deal worth around E1.46 billion ($1.59 billion). SSE intends to develop a pan-European platform in the near term, reaching out to Asia as a longer term strategy. Ian Marchent, SSE's chief executive, stated that as a result of the takeover, SSE now has "development opportunities" in Germany, Portugal, the Netherlands and China. In addition to these new footholds, Airtricity is an established player in Ireland (it supplies power to over 35,000 commercial customers) and has also recently entered the UK market, winning approval to build a wind farm off the coast of Suffolk in east England.

Among the assets to be acquired by SSE are a 308MW portfolio of onshore wind farms and a further 187MW of planned capacity. In total, the company has a portfolio of onshore wind projects in the UK with a capacity of over 1,434MW, which it estimates will reach around 3,500MW by 2013.

SSE's competitors have also been actively looking for new opportunities and a flurry of wind portfolio asset sales has recently been completed. As a result of challenging government and EU-wide targets to curb carbon emissions, and increasing efforts to reduce Europe's dependence on Russian gas by securing indigenous supply, further M&A activity is expected in the European energy markets.

However, the financial implications of wind power expansion plans are not yet clear. The landscape of the European energy markets is changing rapidly and it is possible that wind power could be replaced by competing technologies and fuels. An obvious threat to wind power investments will be the decision on new nuclear plant builds. Wind power could also be undermined by extensive investments in alternative renewable energy sources. Furthermore, while the price and allocation of carbon permits under the EU Emissions Trading Scheme is a major driver behind wind power investments, if prices were to collapse as they did in 2007, this could spell trouble for investors and shareholders alike.

Indeed, the valuation of wind technologies and companies such as Airtricity lies in the hands of the policy makers, and outside of Ian Marchent's control. It is not yet clear that the earnings-per-customer calculations will be sustainable given shocks to key demand drivers and the availability of alternative power capacity.

The impact of nuclear technology and the uncertainty in the wholesale market will be further concerns for investors and SSE's shareholders, who up until now have enjoyed steady growth. The warning signs are apparent; credit ratings agencies Fitch Ratings and Moody's Equity Research have both issued SSE with share downgrades to AA-, largely as a result of the heavily debt-financed deal and the firm's subsequently weakened cash flow. Given the current climate, SSE shareholders will be keeping a close watch on the firm's latest investment. 'End Intelliext

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