South Korea’s state-owned electricity company Korea Electric Power Corp. (KEPCO) has withdrawn an $870 million bid to take over wind power plants in the United States as the Korean government-led preliminary feasibility study questioned low prospective return on the investment. KEPCO’s abrupt dropout of the deal would question the credibility of KEPCO in its future attempts to bid for other overseas assets, market analysts warned.
Late last year, a consortium led by KEPCO was picked as a preferred bidder to acquire two wind power plants in Los Angeles and one in New Hampshire with a combined capacity of 370 megawatts, more than doubling the 180 megawatts power that KEPCO’s five subsidiaries can generate from renewable energy. The deal was valued at $870 million including assumption of debt. If KEPCO clinched the deal, it would be a historic milestone for the company to enter the U.S. energy market, market analysts said.
It is said that KEPCO’s last-minute pull-out from the deal has left a Canadian company, the seller that has given KEPCO more time to review the deal than necessary, dumbfounded. KEPCO initially projected that its investment in the wind power plants would generate a stable return of 6 percent to 7 percent per annum as the power plants had a 20-year long contract with the local electricity firms. However, the pre-feasibility study done by Korea Development Institute (KDI) on the request from the Korea’s Ministry of Strategy and Finance found that the investment would yield a mere 2 percent annual return, much lower than KEPCO’s estimates, citing the weakening energy in the wind in the areas in the last three to five years. It was reported that KDI insisted that the projected return on KEPCO’s investment in the wind power plants should be at least 10 percent to get the green light from the government.
Concerns are rising that the withdrawal of KEPCO might undermine the credibility of the company in the global merger and acquisition (M&A) market. Some experts in the energy industry suggested that the government should lower the feasibility requirement standards. The head of the KDI’s public entity project evaluation unit Lee Jung-kwon said that there is a room for consideration on the suggestion.
By Hwang In-hyuk and Park Yong-beom