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The information memorandum for AES’ AgriVerde division drew a tepid response from suitors this year after the project’s revenue stream and poor clean development mechanism (CDM) implementation emerged, two sources claiming knowledge of the sale process told mergermarket.
The Arlington, Virginia-based power producer decided to take its biogas business off the market about a month ago, after some eight months of shopping it for sale. “Some people [at AES] like the carbon story, some people don’t,” the first source said. Suitors who weighed a move but passed include: Sindicatum Carbon Capital, oil major British Petroleum (BP) and Singapore-listed agribusiness Wilmar International.
That being said, AES would re-entertain offers in a heartbeat, he added. AES declined to comment on any of the sources’ claims.
AES has been in negotiations to exit the struggling biogas business, operated out of Malaysia, this news service recently reported. In order to “staunch the bleeding,” it sought a quiet handover, and sent out the information memorandum around December 2008. “A lot of companies looked at it and walked away. Why? Because they learnt there was no money being made and incredibly negative IRRs,” the first source claimed.
The project is worth USD 60m, an estimation of the total investment size to date, a second source with knowledge of the sale process said. In April 2006, AES formed an alternative energy group as a vehicle to invest USD 1bn over three years in the renewable energy sector. The first business venture in the greenhouse gas emission was via the establishment of AES AgriVerde.
Agri-Verde’s original target for May this year was to build 270 project sites in Asia, but, according to the first source, it has only built 10 - an example of the projects’ agonizingly slow progress.
A combination of poorly managed costs and a flawed business model contributed to AgriVerde’s failure, he explained. For example, AES did not offer a “holistic view” on revenue streams outside of the carbon credit model in its information memorandum. ”They didn’t mention anything about potential electricity sales, or other revenue streams that can be exploited.”
As a consequence, income for Agri-Verde investors will only come from carbon sales and not power. This, he noted, is a difficult sell because with carbon credit comes the uncertainty of whether the project is capable of generating steady cash returns.
AgriVerde’s VP of Southeast and East Asia, Mark Leslie, did not return repeated calls for comment. AES AgriVerde lists its corporate headquarters as Hamilton, Bermuda with an office in Melbourne, Florida, US. AES has a market capitalisation of USD 10bn.
AES AgriVerde makes and maintains bio-digesters on livestock farms and palm oil mills across developing countries in Europe, Africa and Asia. Bio-digesters are used in waste management systems to capture biogas - principally methane - which generates a renewable source of electricity.
When asked whether AES could see a revival of interest from buyers eyeing an entry into South East Asia’s s renewable energy space, the first source replied: “It was losing money from the get go, it’s losing money now-and even if you put capital in tomorrow, you will still lose money”.
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