LONDON, UK: HICL Infrastructure PLC announced prospective acquisitions of a significant minority shareholding in Texas Nevada Transmission LLC (TNT), a US electricity transmission asset; and the award of preferred bidder status for the assets associated with the Hornsea II Offshore Wind Farm offshore transmission link (Hornsea II OFTO).

US Electricity Transmission Asset – TNT

HICL has agreed to acquire a 45.75% shareholding in Texas Nevada Transmission LLC (“TNT”) in the United States, from Manulife Investment Management and John Hancock entities. Following completion of the transaction, TNT will represent approximately 6% of HICL’s portfolio, by value.

Through TNT, HICL is acquiring equity interests in two distinct electric transmission entities:

·    A 45.75% indirect shareholding in Cross Texas Transmission LLC (“CTT”), a regulated electric transmission utility in Texas which operates under a cost-of-service recovery model, regulated by the Public Utility Commission of Texas (“PUCT”). It comprises approximately 289 miles of 345 kV transmission lines and four switching stations, the majority of which commenced operations in 2013; and

·    A 45.75% indirect shareholding in Great Basin Transmission South LLC (“GBTS”), which owns a 75% interest in the One Nevada Transmission Line (“ON Line”), a 231 mile 500 kV electric transmission line and substation which connects two utility systems in Nevada and receives long-term contracted cash flows under a Transmission Use Agreement with NV Energy, an indirect subsidiary of Berkshire Hathaway Inc. (rated AA by S&P). NV Energy holds the remaining 25% ownership interest in ON Line. ON Line has been operational since 2014.

As an essential energy transmission infrastructure asset, TNT benefits from very long-term, predictable cash flows and high barriers to entry. The acquisition increases HICL’s allocation to regulated assets that benefit from perpetual asset lives and structural protections to rising interest rates via the regulated return on equity. The investment is accretive to key portfolio metrics.

TNT’s transmission infrastructure is also expected to play a key role in the energy transition as the US build-out of renewables is accelerated. CTT was awarded projects under Texas’s Competitive Renewable Energy Zone programme in 2009, a regional transmission expansion plan designed to unlock grid capacity constraints and facilitate the future build of renewable generation in the state. Currently, CTT has over 900 MWs of wind generation connected to its system.

This investment sees HICL partner with LS Power, a leading US electricity system developer and operator who has successfully developed more than 13 GW of power generation and over 660 miles of transmission infrastructure. LS Power has significant indirect shareholdings in both CTT and GBTS.

This is HICL’s fifth investment in North America and the investment was led by InfraRed’s Americas team, comprising over 25 professionals, active across core and energy infrastructure. The team is headed by Jack Paris who joined InfraRed in 2021 and prior to this was Co-Head of Citi’s Global Power & Renewables investment banking business. InfraRed’s Asset Management team in the Americas is led by Jay Crawford who joined InfraRed in 2021. Jay has over 20 years of energy and infrastructure experience with senior asset management roles at Cogentrix Energy, Calpine, and Nextera Energy Resources.

Completion of the transaction is subject to regulatory approvals and customary third-party consents and is expected to take place before HICL’s 31 March 2023 year end. The investment will be funded from HICL’s £730m credit facility, which is currently undrawn.

Edward Hunt, Head of Core Income Funds at InfraRed said: “InfraRed is delighted to embark on this partnership with LS Power, a pre-eminent electricity system operator in the US. TNT delivers long-term predictable income under regulated and contracted frameworks, while supplying an essential utility, bolstering network resilience and enabling the transition to renewable energy sources in the states of Texas and Nevada. This acquisition fits firmly within HICL’s vision to support sustainable modern economies and is another example of InfraRed’s international footprint and network enabling HICL to execute its strategic priorities.”

Hornsea II OFTO

The Company disclosed in its Annual Report 2022 that it had re-entered its partnership with the Mitsubishi subsidiary, Diamond Transmission Corporation, to bid for the offshore transmission assets associated with the Hornsea II Windfarm (Hornsea II OFTO). This consortium, Diamond Transmission Partners Hornsea Two Limited, has now been selected by Ofgem as the preferred bidder to own and operate the Hornsea II OFTO. The Hornsea II OFTO represents the fifth successful bid by the partnership of HICL and Diamond Transmission Corporation Limited.

The offshore transmission owner regime covers regulated assets, known as OFTOs, which take ownership of an operational transmission asset and receive contractual, availability-based revenues over a 24-year period. This investment does not have exposure to construction risk, electricity production risk or power price risk. 

The consideration for HICL’s 75% share of the economic interest in the Hornsea II OFTO is expected to represent approximately 3% of HICL’s portfolio by value¹. The investment is anticipated to reach financial close in H1 2023 and will be funded at that time from the Company’s £730m corporate credit facility.