December 7, 2016, was an auspicious date for Eamonn and Brendan McGrath. After a lengthy sale process run by Rothschild, China General Nuclear (CGN) Power Group, a global energy operator, inked a deal to buy a portfolio of Irish wind farms from Gaelectric, the green energy company founded 12 years earlier by the Dublin brothers.
The 230MW portfolio, called Project Douvan, comprised 10 operating wind farms and four others that were still under construction. Lu Wei, general manager of CGN’s European energy company, signed the agreement with Gaelectric chief executive Barry Gavin, with the minister Eoghan Murphy and Yue Xiaoyong, the Chinese ambassador to Ireland, smiling over their shoulders.
Terms of the deal were not disclosed but the law firm Eversheds, an adviser to CGN, described the business purchased as having “an enterprise value in excess of €500m”. Gaelectric’s accounts for the financial year to the end of March 2017 show it recorded a “gain on disposal” of more than €105m after repaying hundreds of millions of euros in project debt on the Douvan assets.
At the time of the sale, Gavin, a brother of Dublin football manager Jim Gavin, said Gaelectric would pay down debt and focus on its earlier-stage wind farms, solar projects and biomass energy plans. Just over a year on, however, Gaelectric is on the cusp of ceasing to exist.
The McGraths and Gavin are gone from the company’s board, and staff numbers have been slashed from more than 100 people to a skeleton crew of about 20, who are managing a sell-off of its mishmash of remaining assets. Binding bids for those assets are due next Tuesday.
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Michael O’Sullivan, a former Anglo Irish Bank executive who is running the break-up process, said Gaelectric’s shareholders would not recoup all of the €50m equity they invested in the company. The backers include Slaney Meats owner Bert Allen, who owns 25% of Gaelectric. Private investors own about 34%, with the balance held by the McGraths, Gavin and Gaelectric management.
“It has been difficult managing shareholders’ expectations,” said O’Sullivan. “We are confident there will be a surplus [from the asset sales] but they are unlikely to recover their investment.”
The investors will have to wait for the outcome of a solvent liquidation of the company to see exactly how they fare. It is a sad end for Gaelectric, which was formed by the McGraths in booming economic times in 2004, and was once regarded as being at the forefront of Ireland’s green energy revolution.
Eamonn, now 58, owned and ran Finance Life, a Dublin pensioneer trustee company that invested client funds in everything from Irish tech ventures to condos in Chicago. Brendan, 69, had a career in the paper industry, culminating in founding and selling his own company Tara Tissue in 2004.
He “did OK” from that deal, he told The Sunday Times in 2012, and a search for investment opportunities led him to the idea of financing wind energy. Enthused, he began the lengthy process of assembling suitable sites, seeking planning permission and grid connections.
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There were signs he was on the right track. Airtricity, the wind operator founded by Eddie O’Connor, was sold in early 2008 for €2bn; in 2009, Bord Gais Energy paid €550m for SWS Energy.
In 2012, Gaelectric switched on its first wind farm, a 4.6 megawatt (MW) project at Skrine in Co Roscommon. At that stage, it had permission for six wind farms in Northern Ireland and several projects in planning in the Republic.
More exotically, the company had also amassed development rights to 300,000 acres of land in Montana, where it aimed to erect almost 2,000MW of turbines. Its plans also included a wind farm in the sea off Co Louth and a €300m energy storage project in Co Antrim (see panel).
In 2014, it bought Imperative Energy, which had installed biomass energy projects in Ireland and the UK for clients including Dail Eireann. The following year, it entered the solar sector and unveiled a rooftop solar installation at a Butlers Chocolates factory in Dublin.
By 2016, there were Gaelectric offices in Dublin, Belfast, London, Manchester, Chicago and Great Falls in Montana. In a presentation to the Institute of International and European Affairs, a think tank, in May that year, Brendan McGrath said Gaelectric aimed to have 400MW of operating wind assets and a 100MW development pipeline by the end of 2017. In addition, it had a pipeline for more than 100MW of solar projects.
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The company had raised €500m of senior and junior debt and equity financing at that point, McGrath said. Its lenders included AIB, German bank Nord/LB, Bluebay Ireland Corporate Credit, Proventus Capital Partners in Sweden, and funds from Hastings, an international infrastructure manager.
Gaelectric also attracted an unusual shareholder in early 2016 in the form of the private equity group Lone Star, which took abut 8% of the company as part of a debt work-out deal with Eamonn McGrath over boom-time debts. Gaelectric carried on unaffected.
By then, the company had already recruited Rothschild to canvass potential buyers. The process is understood to have attracted interest from groups in the UK, America, continental Europe and the Far East, before the sale to CGN.
As part of the deal, Gaelectric would continue to manage the Douvan assets for CGN. At the time, sources close to the company indicated that CGN would also invest in or potentially acquire the Gaelectric holding company. Such a deal could fulfil Gaelectric’s funding needs and take the company to another level. CGN, a partner on the £20bn (€23bn) Hinkley Point nuclear plant in the UK, has expanded into renewables, acquiring French offshore wind farms, the largest wind farms in Belgium and solar power projects in Senegal.
Investment talks between Gaelectric and CGN continued through 2017. In March that year, Brendan McGrath, Gavin and three other directors stepped down from the Gaelectric board, seen as a move to slim down ahead of a deal with CGN. Eamonn McGrath took over as chief executive at the time.
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O’Sullivan said the Project Douvan deal “went perfectly well” and CGN paid an earn-out to Gaelectric last year. In September, however, it delivered the bombshell that it would not be investing further. The change of heart came after the Department of Communications, Climate Action and Environment published the outline for a new renewable energy support scheme that promoted microgeneration and community ownership of green projects. CGN and Gaelectric had expected the government to signal greater support for the industry to help Ireland meet binding green targets.
Instead, the environment minister Denis Naughten signalled a move away from fixed tariffs, saying his department could impose “downward pressure on renewable electricity costs” with a new scheme. O’Sullivan said CGN was uncomfortable with the risk of developing more assets in Ireland.
With CGN out of the picture, Gaelectric faced the prospect of effectively starting over, seeking development funding in an uncertain environment. The large gain on the CGN sale was dented by chunky administrative expenses, finance costs and impairment charges, leaving the company with a profit of €27.5m for the year to the end of March 2017.
A strategic review by KPMG recommended the company sell off its assets, including two operating wind farms, several earlier-stage wind projects, the solar projects and the US assets. The Gaelectric board now comprises O’Sullivan, chief financial officer Shane Doherty, group financial controller Fintan Neville, and Patsy Asple, a representative of Allen. Doherty said the changes were amicable.
“Eamonn was the driving force and had a very strong relationship with CGN. Once it was clear they were not investing, he made the decision to stand down.”
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Gaelectric’s accounts show retirement benefit contributions of €1.5m were paid to the McGraths and Gavin. A further €1.6m in termination payments was paid to the three outgoing executive directors.
The accounts show Eamonn McGrath had €1.2m in loan notes to Gaelectric, while a trust owned by Eamonn and Brendan McGrath and Gavin had €1.6m in loan notes. Earlier this month, Lone Star started a legal action against Eamonn McGrath relating to a debt.
The divestment process started on October 9 and presentations to potential buyers completed last week. The Gaelectric website is now a single page with the company address and phone numbers.
Industry sources said bidders for the wind assets could include quoted group Greencoat Renewables or a Japanese consortium that last year bought an Irish wind portfolio. The solar interests, including land options and grid connection applications, should be of interest to a slew of companies looking at solar projects. The US assets may be a harder sell.
“We are likely to be selling out assets to someone with a bigger balance sheet than us,” said O’Sullivan. “We have a lot of stakeholders and we are clearly, obviously disappointed.”
Antrim project up in the air
The winding down of Gaelectric will end its long-running interest in a futuristic £300m (€343m) project to develop a compressed air energy storage (CAES) facility at the Islandmagee peninsula near Larne in Co Antrim.
The company has championed the project, designed to facilitate the storage of excess energy that could be released on to the grid at times of high demand. It would involve storing energy in the form of compressed air, in caverns created by dissolving salt deposits almost 1km below the surface.
The Larne project was given strategic planning status in 2011, and Gaelectric signed a strategic alliance with Dresser-Rand, an international energy group, to work on the scheme in 2013. The EU gave the project €15m in grants in 2015 and 2016, and last year awarded it a €90m grant under its so-called Connecting Europe Facility.
Gaelectric said last year the Larne facility was the first in a series of CAES projects it planned across Europe. The Larne project missed its original commissioning target of 2017, however, and Gaelectric director Michael O’Sullivan said it would not be investing any more money in the project.
Gaelectric’s latest accounts show Priority Resources, a Derry-based company owned by former Gaelectric director Hugh Logue, has made a claim for the payment of €417,422 relating to advisory work on the CAES project in Larne. Gaelectric has not made any provision for the claim in its accounts, which were signed off on November 29, 2017.
Logue is a former SDLP politician and European Commission official, who has a number of renewable energy interests.