KEPPEL’S flagship open-ended infrastructure fund, Keppel Core Infrastructure Fund (KCIF), has acquired a 39 per cent stake in the Keppel Merlimau Cogen Plant (KMC) from the asset manager.
As the fund’s first asset, this will allow KCIF to “anchor its portfolio with an established asset and stable cash flows” as it expands, said Keppel in a statement on Monday (Mar 3).
Keppel Infrastructure Trust (KIT) will continue to hold a 51 per cent stake in KMC, while Keppel’s stake in KMC has been reduced to 10 per cent, from 49 per cent.
Operational since 2007, KMC is a 1,300-megawatt combined-cycle gas turbine power plant on Jurong Island. It supplies about 14 per cent of Singapore’s electricity.
In 2022, Keppel’s infrastructure division completed “a significant upgrade” of one of KMC’s gas turbines to boost its efficiency, reduce emissions and enable hydrogen compatibility.
Keppel noted that the high efficiency upgrade of a second gas turbine unit “has been planned”, with expected completion in the second half of this year.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Through a long-term capacity tolling agreement with Keppel, KMC receives monthly capacity payments for making the plant’s full capacity available to Keppel’s electricity retail arm.
This agreement is expected to last until 2040, with the capacity payment paid monthly regardless of the actual power generated by the plant. The payment also does not vary with electricity demand or prices.
In April 2024, the capacity tolling agreement was proposed to be extended by 10 years, from 2030 to 2040. This is expected to generate up to nearly S$1.1 billion in long-term capacity payments for KMC.
Keppel said: “This arrangement not only provides KCIF with a stream of stable cash flow but also ringfences the fund’s market exposure to Singapore’s wholesale power market.”
Keppel’s infrastructure division will continue to operate and maintain the plant.
Janice Bong, managing director of power and renewables at Keppel’s infrastructure division, said: “As the operator of KMC and sponsor of both KCIF and KIT, Keppel will continue to earn recurring distributions and fees.”
Jee Kim, chief executive of KCIF, pointed out that this transaction highlights KCIF’s synergy with Keppel and positions the fund to seize opportunities in Asia-Pacific’s growing infrastructure market. It also enables the fund to “deliver the best risk-adjusted returns” to its limited partners.
KCIF has an initial target size of US$2.5 billion. In October 2023, it achieved its first close, with initial capital and co-investment commitments of US$575 million.
The fund focuses on highly-defensive infrastructure assets across the Asia-Pacific’s developed markets, with the aim of providing stable, long-term cash flows.
Shares of Keppel were down 0.2 per cent or S$0.01 at S$6.85, while KIT units were down 1.1 per cent or S$0.005 at S$0.435, before the midday trading break on Monday.