The US investment firm that owns Energia Group, the Irish electricity and gas utility supplier to almost 850,000 customers, may be preparing to sell the business after eight years. But the group’s chief executive Ian Thom, a barrister by background, is keeping his counsel.
“I’m not going to go there on that speculation,” he says in an interview with The Irish Times, when asked about New York-based I Squared Capital’s plans to sell the group, valued at about €2.75 billion. “Shareholders do come and go over time. I Squared have been – and continue to be – a very good owner and really understands infrastructure and energy and are willing to take the long view.”
Still, his willingness to be interviewed at this time about the business is surely interesting.
“If and when they decide to divest, the investment thesis is excellent,” says Thom. “And that’s key for us: to always [be able to] access capital to enable growth and perform that pivotal role that we have in the energy transition. That transition represents a huge opportunity for us.”
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Energia, which moved its headquarters from Belfast to Dublin five years ago, owns more than 400 megawatts (MW) of producing onshore wind assets and purchases electricity from third party producers behind a further 1.2 gigawatts (GW) of renewable energy generation. The total equates to about 20 per cent of all current wind generation on the island.
It also has so-called combined cycle gas turbine plants in Huntstown in north county Dublin – with a total capacity of 747MW, which provide system-critical flexible generation to plug gaps in electricity supplies in the Greater Dublin Area. In addition, it opened an emergency 50MW gas-fired electricity plant earlier this year in Huntstown under a contract from the Government, to help ensure the lights don’t go out across the State’s power system when demand is high.
“We also have a 3.4GW pipeline of opportunities across onshore wind, a very strong portfolio of solar projects, and also offshore plans,” Thom says, from the boardroom on the 10th floor of its headquarters in the former Liberty Insurance building (now the Generali Building) on the perimeter of the Blanchardstown shopping centre in west Dublin.
The company, meanwhile, has plans to develop more battery storage capacity, in addition to its existing 50MW storage facility in Belfast, he says. And it has also developed the first wind farm in the UK and Ireland to produce hydrogen by using power to split water into hydrogen and oxygen – and is advancing plans for data centres on the Huntstown campus.
All of this requires capital, including significant fresh equity, which would be used alongside debt to finance various projects, Thom acknowledges.
The group’s net debt has fallen about almost half to €391.3 million since I Squared took over the business. However, the growth in assets and earnings over the same period has led to a much greater pace of deleveraging.
Earnings before interest, tax, depreciation and amortisation (Ebitda) have more than trebled under the US owners, to €375 million for the year to the end of March.
Thom says Energia has proven how complimentary the three arms of its business are from an earnings point of view, despite upheaval across international energy markets in recent years.
While earnings soared across the group’s renewables and flexible generation businesses in the two years to March 2023 amid soaring electricity prices globally following Russia’s invasion of Ukraine, its business supplying customers suffered large losses as its margins were squeezed by heightened wholesale prices.
However, the situation had reversed in the latest financial year, with the customer solutions business – which has a 17 per cent share of Ireland’s electricity supply market – swinging to Ebitda of €207 million from an Ebitda loss of €162 million for the previous year. This helped drive group earnings 40 per cent higher, even as its renewables and flexible generation units saw an Ebitda decline.
“We have demonstrated that by having those assets together in a portfolio actually allows for strong and sustainable earnings,” said Thom. “I think we’ve also proven [under I Squared’s ownership] that we’ve been able to produce the wherewithal to invest from cash flows and deleverage the business considerably, too.”
It has also been able to remunerate its owners. Energia paid out €200 million in dividends in its last financial year. The figure, including €50 million paid out days before Christmas, eclipsed the €181 million of dividends distributed by Energia under the first six years under I Squared.
“There have been dividends over the cycle. But I don’t think there has been anything that one wouldn’t expect,” says Thom. “Ultimately, a lot of the investors in funds that I Squared are fiduciaries of are pension funds.”
A native of Cookstown, Co Tyrone, Thom studied law at Cambridge University and undertook postgraduate training at Queen’s University Belfast to become a barrister, before spending five years in private practice at the Northern Ireland bar, focusing on commercial and civil litigation.
He joined Craigavon, Co Armagh-based poultry producer Moy Park’s US owner, OSI Group, in 1998 as legal director for its European business, initially working in Northern Ireland, before moving to the UK. OSI, which had grown up as a behind-the-scenes supplier of meat to McDonald’s in the US, used the purchase of Moy Park in 1996 as part of a geographic, product and customer diversification strategy. (Moy Park subsequently changed hands twice and is now ultimately owned by Brazil’s JBS, the world’s largest meat processor.)
Thom was headhunted by Viridian Group (as Energia was then known) in 2001, which allowed him to return to Northern Ireland to become the group’s general counsel, weeks before the 9/11 terrorist attack. He recalls being in the company boardroom watching in horror – like the rest of the world – at the time as events unfolded.
He was specifically recruited to help manage the disposal of a number of noncore businesses that belonged at the time to Viridian, which itself was a holding company set up in 1998 after the privatisation and flotation of Northern Ireland Electricity (NIE) five years earlier.
Sales over the following three years included: a personal credit and insurance services business for £111 million (€131 million); a technology services unit in 2005 for £150 million; a fleet services company for less than £12 million; and a minority stake in a white goods retailer for what was described at the time as a “nominal sum”.
“A lot of my job was about reforming the business into something that was much more energy focused and much more All-Ireland focused,” says Thom.
At the end of the tidying up exercise, Viridian became a takeover target itself. It would agree in late 2006 to be acquired by Bahraini private equity firm Arcapita for an enterprise value, including debt of £2.15 billion. The leveraged deal was completed in August 2007, just as global debt markets were experiencing the first rumblings leading to the great financial crash a year later.
Viridian would essentially be forced to sell its NIE’s regulated power transmission and distribution business to the ESB in 2010 for £1.2 billion (€1.4bn at the time) to pay down borrowings during the financial crisis – three years after the formation of the all-island electricity market.
Thom took over as group CEO in early 2011, a few months after the networks deal was completed.
Arcapita itself would file for bankruptcy protection, known as Chapter 11, in the US in 2012, before exiting the process a year later after securing debt backing from investment bank Goldman Sachs.
It would put Viridian up for sale in early 2016, agreeing months later to pass on the business for €1 billon to I Squared, a firm that had been set up by a group of former Morgan Stanley executives.
The US firm subsequently sold a minority stake in Energia to an unknown investor the following year and set up a holding company over the business in the Cayman Islands. Years later, and Thom is still unwilling to spill the beans on identity of the investor.
I Squared made two previous attempts to sell Energia – in 2018 and 2020. The Irish Times reported in May that it had hired investment bankers from Morgan Stanley and Barclays to manage a third effort, with Spanish banking giant Santander retained to put together a pre-arranged debt package – or what is known in deal-making circles as staple financing – for potential bidders.
Industry sources expect a process to officially launch in the coming months. Reuters, which first reported on the latest sale plan in February, has put an enterprise value of about €2.75 billion on the group.
Carbon emissions have grown along with economic development since the onset of the industrial revolution in the late 18th century. And one of the biggest mental obstacles to governments pursuing aggressive emissions reduction policies – despite lofty long-term net-zero goals – is a perceived conflict between those and gross domestic product (GDP) growth.
“But why have this unnecessary dichotomy between growth and sustainability?” says Thom. “Reducing emissions isn’t a zero-sum game in terms of growth. It shouldn’t be a choice between growth and decarbonisation. We can have both. The solution is to electrify as much as the economy as you possibly can and make sure the power comes from renewables. Of course, that’s easier to say than deliver.”
Thom also takes issue with a notion of Ireland becoming a major exporter of energy in the future, with the Government’s goal of delivering 37GW of offshore wind capacity by 2040 – about seven times current peak demand.
“Why would we want to export your resources like this? We should be looking to add value to electrons here and create the underpinnings of a modern digital economy. Ireland’s been so good at this over the decades in terms of bringing in foreign direct investment and developing a huge pharma and tech sectors.”
Whatever about official plans to turn Ireland into the equivalent of a “Saudi Arabia of Europe for offshore wind”, it is certain now that the Government’s aim of having 5GW of offshore turbines installed by the end of this decade will be missed.
As things stand, offshore wind farm auctions – where the State guarantees a price for electricity produced in order to help projects secure funding – have drifted far off track. The first auction took place last year, with the award of contracts for four projects with a combined capacity of 3GW.
Energia is planning to be part of the second wave. It has joined forces with Norwegian offshore wind company Vårgrønn to develop up to 1.8GW across projects on sites in the North Celtic Sea and South Irish Sea.
Their North Celtic Sea project off the south coast of the country overlaps with an area that’s set to be subject to an upcoming second phase auction. The Government once planned to launch by the end of 2023, but is now not expected by industry followers until next spring.
The burning question is who will be the owner of Energia at that stage?
CV
Name: Ian Thom
Position: CEO of Energia Group
Lives: Belfast
Family: Two grown-up children
Hobbies: Keeping fit, reading about art and architecture
Something we might expect: He says his job is made easier by being supported by a strong team of energy professionals
Something that might surprise: He’s a lawyer by profession
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