Renewable Energy M&A: AEP subsidiary to acquire 1 GW renewable portfolio in the US from Invenergy

published on 03 July 2023

Deal details: AEP subsidiary Southwestern Electric Power Co (SWEPCo) will acquire the 200 MW Mooringsport solar farm in Louisiana, the 201 MW Diversion wind facility in Texas and the 598 MW Wagon Wheel wind project in Oklahoma. These projects, currently in different stages of development, are expected to commence commercial operations during 2024 and 2025. The projects represent a total investment value of ~$2.2bn, of which Enerdatics estimates the purchase price to be $724mn and remaining to be the cost of construction. The estimation is based on observed transaction and capex metrics for similar solar and wind projects in the USA. The addition of this capacity will enhance SWEPCo's presence within the Southwest Power Pool (SPP) and reinforce its position in the region.

Deal rationale: The agreement with Invenergy is a strategic move by SWEPCO to address the growing capacity gap and meet the increasing energy demands of its customers. The company is currently facing a capacity deficit, which is projected to reach ~1.5 GW by 2028. This deficit is mainly due to the retirement of older generation units and new regulations from the Southwest Power Pool (SPP) requiring utilities to have additional generation capacity available for reliability purposes. 

Moving forward, SWEPCo has outlined its future plans to acquire additional renewable assets in its regulated markets, taking advantage of the benefits provided by the Inflation Reduction Act. In a regulatory filing, the company has estimated significant savings of up to $1.38/MWh of electricity produced through this investment. This includes an estimated $1.1bn in production tax credits and other associated benefits. Within these favorable conditions, SWEPCo aims to expand its operational capacity by more than 5.75 GW between 2023 and 2032, in response to the increasing demand for renewable energy in the market. The expansion will be financed by the $8.6 billion allocated by its parent company, AEP, specifically designated for supporting the growth of its regulated business over the next five years.

The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.

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