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9 November 2022

IRA triggers feeding frenzy in US renewables, Duke sells for $4bn

A second major investor owned utility in the US – in the form of Duke Energy – has put its renewables arm up for sale for something in the region of $4 billion. This has been triggered by the eagerness of US based renewables firms to buy into a larger base of projects, including major European utilities and their US operations such as Engie, Iberdrola and Enel.

Germany’s RWE paid $6.8 billion a month ago for the renewables arm of Consolidated Edison, at a value of 11 times its EBITDA, increasing its live renewables by 3.0 GW and adding 7 GW to its pipeline of mostly solar and battery projects. RWE in the US was almost entirely based on Wind, so this deal balanced its portfolio perfectly, especially as right now battery projects are being installed at record rates.

Duke says it expects to announce the details of a buyer for it renewable energy assets, including 3.4 GW of wind and 1.7 GW of solar, in early 2023.

Part of the reason for deals of this size to emerge is not because US utilities do not want to own renewables, but due in part because of the difficulty right now in getting new deals done – the pipelines of developed projects are almost more valuable for any that are ready to fund right now. Most renewable firms in the US have witnessed a fall away in ready projects due to inflation and supply chain difficulties in solar, batteries and also wind in the last quarter or so.

US utilities and renewables firms have seen that the Inflation Reduction Act will lead to lots of new renewables opportunities once everyone has been given a chance to think through the subsidy lines that work best on their pipeline base. But at the same time utilities in particular want to free up cash to concentrate on transmission line improvements which will lead to their distribution network being far more readily available for yet more renewables.

The Infrastructure Investment and Jobs Act (IIJA) when combined with the Inflation Reduction Act (IRA) work together in the US to build physical grid capacity to carry the fresh renewables that will come from the IRA. The IIJA, represents an opportunity for investor utilities to get a free upgrade to its transmission network, one which is vastly more resilient, and which is better designed to handle Distributed Energy Resource (DER) and Electric Vehicle (EV) charging.

While there are not many more details from the Duke deal, these two deals Duke and ConEd represent the start of a feeding frenzy in renewables in the US, with buyers trying to build scale, and utilities wanting to rid themselves of costs, and free up cash, especially at what now seem very generous prices.

Another similar deal this week was announced by French firm Engie which said that it has acquired 6 GW of solar and battery storage capacity to its development pipeline – by buying of 33 early to late-stage projects to accelerate its renewables development across multiple states in North America. It has not said what it paid for the projects or how far developed they are.

Effectively overnight the IRA has increased the value of all renewables pipelines because they are so much more likely now to get funding. Existing renewables are simply valued at the rate at which they throw off cash, and most of the premium will be in the developed portfolio.

Engie has acquired these assets from Belltown Power US and comprises 2.7 GW of Solar with 0.7 GW of paired storage and 2.6 GW of stand-alone battery storage. The projects are located right across the footprints of ERCOT, PJM, MISO and WECC1. Engie already has 3.9 GW of installed renewables as of June this year.

“These projects are a tremendous addition to our existing renewables pipeline and will help to further accelerate Engie’s role in the energy transition. The mix of solar, paired and stand-alone storage across a wide set of geographies both complements our existing portfolio as well as provides opportunities for expansion into new areas in the United States. The 3.3 GW of battery storage projects will be a critical enabler of flexibility and supports the balance of the grid to improve its reliability and resilience,” said Dave Carroll, Chief Renewables Officer and Head of Engie North America.