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1 March 2023

AEP 3rd US utility to dump older renewables because of IRA

This week a third US utility – American Electric Power – decided to sell of its unregulated renewables portfolio in order to get cash ready so that it can take advantage of the Inflation Reduction Act, whereby it can either build transmission or new renewables projects which will be even more profitable.

The AEP renewables will go to a consortium called IRP Acquisition Holdings, led by Invenergy and backed by funds from Blackstone. The deal is worth around $1.5 billion. The 14 projects are a mix of wind and solar totaling just under 1.4 GW of unregulated, contracted renewables

The sale should close in Q2 and the net payment to AEP will be around $1.2 billion after costs and taxation.

This is the third such deal in a gold rush triggered by RWE’s $6.8 billion purchase in October of the renewables arm of Consolidated Edison. This allowed RWE of Germany to jump from 4.2 GW of renewables in play in the US market, to about 7.2 GW, and a pipeline that jumps from 17 GW in the US to 24 GW purely in solar, wind and batteries all for a business that was already in profit to the tune of $600 million a year. This brought RWE some vital wind experience, as its’ US renewables were mostly solar before.

The simple truth about President Biden’s Bipartisan Infrastructure Agreement and the Inflation Reduction Acts are that they offer some fantastic incentives both to build transmission and to build out utility owned and run renewables – and these benefits cannot be retroactively added to existing renewables projects, so these are being sacrificed to renewables specialists in order to free up utility cash to develop new projects.

The other major sell-off of renewables has still not found itself a buyer, which is Duke Energy, which said back in November that it would follow in Con Edison’s footsteps, but has yet to close a deal. In its most recent results it took a $1.3 billion impairment around its renewables, and warned investors it would take a while longer before what it hoped would be a $4 billion deal could be complete.

Invenergy is one of the most active US renewables companies and is particularly active in onshore wind farms and recently won a bid for 80,418 acres of seabed for offshore wind development from the US Bureau of Ocean Energy Management (BOEM) paying $145.3 million. It is the first US based renewables firm to land such a deal, all of the others going to established European players operating in the US.

“We’re committed to de-risking the company and prioritizing investments in our core regulated businesses. The proceeds from the sale will be directed to the significant pipeline of opportunities we have to enhance service for customers across our footprint and advance our clean energy transition,” said Julie Sloat, AEP CEO.

AEP has said it plans to invest $40 billion in the next five years on regulated transmission and generation business, with a focus on adding 17,000 MW of new generation resources and building a more resilient transmission and distribution infrastructure.

Con Edison said openly that the cash it landed from its deal will help it keep pace with one of the most aggressively green US States in New York – which has a mission to build out a colossal amount of solar (41 GW), a pioneering 19.4 GW of offshore wind and find room for another 13.8 GW of onshore wind, and take control of 3.5 GW of more of hydropower from Canada and build out its distribution system to handle at least 10 GW of distributed solar, all while adding some 12.6 GW of energy storage – by 2050.

AEP has had these assets on the market for almost precisely a year, but will have raised the price considerably once the IRA Act passed in August. We expect at least another 5 or 6 similar deals to be announced before the end of 2023.

AEP, based in Columbus, Ohio, maintains one of the largest US electricity transmission systems with over 225,000 miles of distribution lines and 5.6 million regulated customers in 11 states. It says it is on track to reach an 80% reduction in carbon dioxide emissions from 2005 levels by 2030.