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Fortum to sell its 50% stake in Stockholm Exergi to investor consortium

Finland-headed energy utility major Fortum Oyj has announced that it has signed an agreement to sell its 50 percent ownership in the Swedish district heating and cooling company – Stockholm Exergi Holding AB – to a group of long-term European institutional investors with a strong commitment to the infrastructure sector for a total consideration of approximately SEK 29.5 billion (≈ EUR 2.9 billion). The transaction is expected to be completed during 2021, subject to customary closing conditions.

Stockholm Exergi fascade

Fortum Oyj has signed an agreement to sell its 50 percent ownership in the Swedish district heating and cooling company – Stockholm Exergi Holding AB – to a group of long-term European institutional investors with a strong commitment to the infrastructure sector. Supplying district heat, cooling, and electricity to the City of Stockholm, Stockholm Exergi’s Värtaverket combined heat and power (CHP) facility consists of several different production units. The last remaining coal-fired boiler in the KVV6 (CHP unit 6) block was officially closed in April 2020, at the end of the 2019/2020 operating season.

According to a statement, a key part of Fortum’s strategy execution is to continuously review, optimize, and rotate businesses for value creation and to enable new growth. In particular, Fortum has a good track record in transforming and decarbonizing assets and businesses.

Accordingly, in July 2020, Fortum announced it would begin the strategic evaluation of its 50 percent ownership in Stockholm Exergi, together with the City of Stockholm that owns the remaining 50 percent.

In 2020, Fortum divested the district heating businesses in Joensuu and Järvenpää, in Finland, and in March 2021, Fortum announced it had agreed to sell its district heating businesses in the Baltics. The strategic reviews of the heating and cooling businesses in Poland and the Consumer Solutions business are currently ongoing.

European investor consortium

For Fortum, Stockholm Exergi is a joint venture and is accounted for using the equity method. In 2020, Fortum recorded EUR 46 million in ‘share of profits from associates and joint ventures’ from Stockholm Exergi, consequently, there was no impact on Fortum’s EBITDA.

Fortum expects to record a tax-exempt capital gain of approximately EUR 2.4 billion in the City Solutions segment’s results in connection with the closing of the transaction. The transaction is subject to customary closing conditions and Fortum expects closing to take place before the end of 2021.

We are very pleased to have found an excellent new owner for our 50 percent shareholding. Stockholm Exergi is a well-run and well-invested company, where the transition to low-carbon intensity has largely been done. This transaction now concludes our two-decade era of good collaboration with the City of Stockholm and I am proud of our contribution to the transformation of Stockholm Exergi. Now is the right time for a new owner to take over and continue to develop the company further in close cooperation with the city, said Markus Rauramo, President and CEO of Fortum.

The buyer consortium comprises APG, Alecta, PGGM, Keva, and AXA, a group of long-term European institutional investors with a strong commitment to the infrastructure sector.

The investment in Stockholm Exergi represents a significant milestone of APG’s overall commitment to significantly reduce CO2 emissions worldwide. Stockholm Exergi has a fantastic track record of growth, leadership in ESG, and delivering and developing customer-centric solutions (like Carbon Capture and Storage), all of which are driving the long-term sustainable energy transition of Stockholm and the region. We intend to grow the Company by investing significant capital, targeting to enhance the environmental sustainability and efficiency of its heating plants and district heating networks. Alongside our partners, we are looking forward to working with Management to support them in their ambitious vision, and with the City of Stockholm to develop our future long-term partnership, said Carlo Maddalena, Senior Portfolio Manager at APG.

The total consideration is approximately SEK 29.5 billion (≈ EUR 2.9 billion) based on a 100 percent enterprise value of SEK 71.9 billion (≈ EUR 7.1 billion).

We believe Stockholm Exergi is an excellent business that exhibits all the financial and ESG characteristics we look for when investing in the infrastructure asset class. The experienced management team of Stockholm Exergi has made remarkable ESG accomplishments during the last couple of years and we are keen to support Stockholm Exergi in pursuing its ambitious goal of becoming climate-positive by 2025 and generating negative emissions, said Johanna Strömsten Friberg, Portfolio Manager at Alecta.

Versatile district energy system

Stockholm Exergi is the owner and operator of the largest and most versatile district heating and cooling system in the Nordics. 24 hours a day, all year round, the company provides highly environmentally sustainable district heating, cooling, and waste management services for both corporate and residential customers across seven municipalities in Stockholm County. And critical electricity capacity to the Stockholm electricity grid.

In 2020, Stockholm Exergi’s heating and cooling sales were 7.6 TWh and power sales 0.7 TWh.

For the world to meet climate change, both renewable energy and negative emissions are needed. Our goal is a climate-positive business in 2025 and to succeed in this, strong, committed and long-term owners are required who share our view of sustainability – properties such as the City of Stockholm, Fortum, and the investor consortium led by APG all share. We want to thank Fortum for their important contribution as co-owners and look forward to the next chapter in our journey towards creating the world’s first climate-positive capital, together with partners, customers, and owners, said Anders Egelrud, CEO of Stockholm Exergi.

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