Sembcorp’s purchase of Australia’s Alinta Energy has green risks

[SINGAPORE] At the heart of Sembcorp’s plan to buy Australian utility Alinta Energy is the chance to get a firm foothold in a potentially massive market for renewables.

But Alinta is a company that still has a long decarbonisation transition ahead, and an acquisition could complicate Sembcorp’s green journey while adding costs and uncertainties.

Sembcorp on Dec 11 announced a deal to buy Alinta for A$6.5 billion (S$5.6 billion), subject to shareholder and regulatory approvals.

The current owner of Alinta, Hong Kong billionaire Henry Cheng’s Chow Tai Fook Enterprises, was already reported in 2022 to have been seeking a buyer, with the utility valued at about US$3 billion at the time.

In 2023, Alinta sold Western Australian assets in the Pilbara region that represented almost a sixth of its generation capacity at the time for A$1.7 billion, including debt.

In the year ended June 2025, Alinta posted a net profit of A$530 million and book value of A$2.5 billion. That puts the purchase price at about 12.2 times earnings and about 2.6 times book value.

If the deal goes through, it will have a negative impact on Sembcorp’s emissions profile, and could make it more challenging for the group to reach its emissions targets post-acquisition.

As at end-2024, Sembcorp’s total energy portfolio had 25.1 gigawatts (GW) of capacity, of which about 68 per cent, or 17 GW, came from installed, secured or under-construction renewable capacity.

Alinta’s operating capacity as at Jun 30, 2025, was about an eighth of Sembcorp’s, at 3.02 GW, of which just 27 per cent was owned and contracted renewables and storage.

The remaining 32 per cent of Sembcorp’s capacity comes from gas and diesel. Alinta’s capacity is 48 per cent gas, and 25 per cent from a contracted brown coal power station: the Loy Yang B coal-fired plant.

Not surprisingly, Alinta has a somewhat browner emissions profile than Sembcorp.

Sembcorp’s Scope 1 and 2 emissions – greenhouse gases directly produced by Sembcorp, and those indirectly produced from purchased energy, heating and cooling – in 2024 were 9.3 million tonnes of carbon dioxide equivalent (MtCO2e).

That represented an emissions intensity of 0.27 tonnes of CO2 equivalent per megawatt-hour (tCO2e/MWh).

While Alinta’s Scope 1 and 2 emissions in the year ended June 2025 were a considerably lower 606,405 tCO2e, its Scope 1 emissions intensity were higher, at 0.331 tCO2e/MWh.

Alinta does not report Scope 2 emissions intensity, but the exclusion is not significant because its Scope 2 emissions are less than 1 per cent of Scope 1 emissions.

This could be inconvenient for Sembcorp, which has set a target to lower its emissions intensity to 0.15 tCO2e/MWh by 2028. Sembcorp says that, had Alinta already been consolidated this year, Sembcorp’s emissions intensity would have increased to 0.36 tCO2e/MWh. Absolute emissions would have risen to 18.1 MtCO2e in 2025.

An Alinta acquisition could also expose Sembcorp to coal for longer than expected. Sembcorp sold coal power subsidiary Sembcorp Energy India Ltd (SEIL) in 2023, but because Sembcorp provides a long-term deferred-payment financing arrangement, debt guarantees and technical advice services to SEIL, the coal plant’s emissions still get counted under Sembcorp’s Scope 3 ledger.

Alinta will bring another coal plant into the mix with the 1.2 GW Loy Yang B, which provides about a fifth of the state of Victoria’s power supply.

Alinta doesn’t actually own Loy Yang B – ownership sits with Alinta’s parent – but it buys Loy Yang B’s electricity under a wholesale contract, so Loy Yang B’s emissions go into Alinta’s Scope 3.

If Alinta is consolidated into Sembcorp, Loy Yang B’s emissions will count under Sembcorp’s Scope 3 as well.

Loy Yang B is like a prolific vaper. In fiscal 2025, Alinta reported 7.4 million tonnes of emissions from the plant. That’s almost half of Sembcorp’s 15.7 million tonnes of Scope 3 emissions in 2024. Loy Yang B is scheduled for closure only in 2047.

Sembcorp says the deal doesn’t contradict its commitment to not invest in any greenfield or standalone coal generation assets in markets without a path for transition. That’s because Loy Yang B provides essential base-load for the region it serves and is a source of cheap, reliable and flexible power, as new renewable and storage capacity is built in Victoria.

It should be noted that neither Alinta nor Sembcorp include Scope 3 emissions in their climate goals, so SEIL and Loy Yang B aren’t going to lead Sembcorp to be penalised for missing sustainable-finance key performance indicators.

But there are transition risks, such as government policies that accelerate the phasing out of coal or more aggressive carbon pricing, that could affect future revenues.

However, Alinta’s future looks greener.

The company currently has a renewable development pipeline of renewable and energy storage projects, with a total projected capacity of 10.4 GW.

The green transition enjoys government support, with Australia’s federal government aiming to source 82 per cent of electricity from renewable sources by 2030. That’s a huge leap from the 9 per cent contribution of renewables in 2023 to 2024.

But that greening comes with risks related to the need for costly investments in grid infrastructure, and it’s not entirely clear yet who will foot the bill. And if the willingness to pay is weak, Alinta’s portfolio might not shift towards renewables as quickly as expected.

In 2024, Alinta managing director and chief executive Jeff Dimery cautioned the Australian press that the energy transition would be costly.

In recounting that speech, Alinta’s sustainability report stated: “Replacing the capacity of the brown coal-fired power station which sells us electricity (Loy Yang B) with pumped hydro and offshore wind would cost more than A$10 billion today, yet the power station was acquired by our owners for A$1.1 billion in 2018.”

Post-acquisition, Alinta may present Sembcorp with either significant capital expenditures or a slower-than-expected green transition.

Of course, no investment is without risk. For a renewable energy player like Sembcorp, Australia is an important market with significant potential. The country’s ridiculous amount of real estate, sunshine and wind are luxuries that countries in more temperate latitudes or with denser populations can only dream about.

At the right price, and if costs and policies align, a strong foothold in the market is worth buying.

This article first appeared in BT’s ESG Insights newsletter on Dec 12