The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings GmbH (Scope) has today affirmed the A-/Stable issuer rating on Akershus Energi AS. Scope has also affirmed the A- senior unsecured debt rating and the S-1 short-term debt rating.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Akershus Energi’s A- issuer rating reflects a standalone credit assessment of BBB+ and a one-notch uplift based on the company’s status as a government-related entity.

Business risk profile: BBB- (unchanged). The business risk profile continues to reflect the company’s main exposure to environmentally friendly and low-cost hydropower generation (positive ESG factor), supplemented with district heating operations and a 33.4% stake in Odal Vindkraftverk AS (“Odal Wind Farm”).

The group is a regional player in hydropower generation, mostly operating in southeast Norway, with a generation volume of 2.7 TWh in 2023. Despite its small size, the company’s portfolio of power plants is assessed to have a good market positioning, owing to its strong merit order position given the low marginal cost of generation and clean carbon footprint.

Profitability remains a key strength of the business risk profile. In 9M 2024, the Scope-adjusted EBITDA margin* was 59%, down from 63% in 2023 and 63% in 9M 2023. This is partly driven by the lower power price in Norway’s NO1 pricing area, which was NOK 471/MWh in 9M 2024, down from NOK 761/MWh in 2023 and NOK 747/MWh in 9M 2023. In addition, the company’s district heating business has delivered weaker profitability so far in 2024 due to a combination of lower sales prices and the usage of more expensive fuels. Still, Scope expects continued solid profitability metrics, with an EBITDA margin of around 60% and a return on capital employed of around 20% forecasted over the next few years.

The business risk profile continues to be constrained by the inherent industry risk with exposure to volatile power prices for unhedged generation volumes. Other constraints include the company’s low diversification by utility segment and geography.

Financial risk profile: A (unchanged). Akershus Energi’s financial risk profile remains the primary support of its standalone credit assessment. It continues to be driven by low indebtedness, as exemplified by a net cash position in 2022-2023 and forecasted leverage (Scope-adjusted debt/EBITDA) of 0.1x at YE 2024.

In 2025-2026, the agency foresees a gradual weakening of leverage, which is based on lower power prices as well as an expected ramp-up of capex spending with the company planning to undertake larger upgrades in its hydropower and district heating businesses. While weakening, leverage is expected to stay within a range of 0.0x-0.5x, which is broadly in line with the current financial risk profile assessment.

Debt protection, as measured by EBITDA interest coverage, continues to be very strong. Similar to 2023, the company is expected to have a net interest income in the medium term. Besides its sizeable exposure to fixed-rate debt at low rates, debt protection benefits from interest earned on the company’s substantial cash reserves.

Given the current capex plans, which amounts to more than NOK 1bn in 2024-2026, the average free operating cash flow is expected to be around break even. The company is therefore likely to gradually increase net debt to maintain its dividend policy.

In the medium term, Scope-adjusted EBITDA does not include dividend income from the Odal Wind Farm. This follows the immediate shutdown of operations after an incident in April 2024 when a blade of one of the turbines broke off. Dividend payments are currently restricted under a waiver agreement with creditors related to financial covenants on the loan (EUR 88m outstanding as of YE 2023) in Odal Wind Farm. The loan is non-recourse to the owners and assets are pledged in favour of the creditors. As of Q3 2024, 17 out of 34 turbines were back in operation.

Liquidity: adequate (unchanged). Akershus Energi’s liquidity is adequate with forecasted liquidity ratios standing well above 200% in 2024-2026. As of Q3 2024, the company had available cash and cash equivalents of NOK 1,123m and a committed (undrawn) multi-year credit line of NOK 375m, which compares to upcoming debt maturities of NOK 4m in Q4 2024, NOK 109m in 2025, and NOK 9m in 2026.

Akershus Energi’s loan agreements contain certain financial covenants. Scope does not expect any covenant breaches in its base case.

Supplementary rating drivers: +1 notch (unchanged). The issuer rating incorporates a one-notch uplift for parent support to the standalone credit assessment of BBB+, leading to a final issuer rating of A-. Scope has applied a bottom-up approach using the framework outlined in its Government Related Entities Rating Methodology. The one-notch uplift reflects the public sponsor’s ‘high’ capacity and ‘medium’ willingness to provide support. The rating uplift is in line with other Scope-rated Norwegian utilities with majority or full public ownership but no explicit guarantees on their debt or financial support.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s assumption that leverage will remain between 0.0x and 0.5x over 2024-2026 which is supported by the company’s solid internal funding capacity which limits external fundraising over the foreseeable future. While unlikely to have an impact in the next couple of years, Scope notes the company’s growth ambition in wind power, which could cause ratings pressure through increased indebtedness if larger investments materialise.

The upside scenario for the ratings and Outlook is:

1. Improving business risk profile paired with the maintenance of an unchanged financial risk profile. This is deemed remote as it would require larger scale or more diversified and stable cash flow streams.

The downside scenarios for the ratings and Outlook are (individually or collectively):

1. Leverage significantly exceeding 0.5x on a sustained basis.
    
2. Loss of government-related entity status (remote).

Debt ratings

The senior unsecured debt rating has been affirmed at A-, in line with the issuer rating.

The affirmed S-1 short-term debt rating is based on the underlying A-/Stable issuer rating and reflects better-than-adequate short-term debt coverage as well as adequate access to external financing from banks and capital markets.

Environmental, social and governance (ESG) factors

Akershus Energi's largest business exposure remains hydropower generation. This results in low transition or stranded asset risks and remains supportive to future cash flow generation by ensuring high utilisation of power plants and a continued strong position in the merit order of the power generation portfolio.

In addition, Akershus Energi’s portfolio of large-scale (over 10 MW) hydropower plants underpins its government-related entity status, as those assets are required to be at least two-thirds publicly owned.

All rating actions and rated entities

Akershus Energi AS

Issuer rating: A-/Stable, affirmation

Short-term debt rating: S-1, affirmation

Senior unsecured debt rating: A-, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 16 October 2023; Government Related Entities Rating Methodology, 10 December 2024; European Utilities Rating Methodology, 17 June 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Per Haakestad, Analyst
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 18 January 2019. The Credit Ratings/Outlook were last updated on 13 December 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.