Indiana Michigan Power (I&M), a unit of American Electric Power (AEP) will acquire the project from EDF once the construction of the asset is complete. Further, I&M signed a 30-year power purchase agreement (PPA) with EDF for the entire output of the 180 MWac Sculpin solar project, also in Indiana. The projects are currently in the development phase with commercial operation expected as early as Q4 2025.
Enerdatics observes that the acquisition is representative of the strategy adopted by several vertically integrated utilities in the US, under which the companies aim to divest assets in unregulated markets and expand operations in regulated service areas. Factors that have led to this phenomenon include increasing competition in the renewable energy generation segment in unregulated markets, which is expected to rise further following the passage of the Inflation Reduction Act (IRA) in July 22. Additionally, the stable power price environment in regulated power markets reduces uncertainty related to project financing and earnings amid the rising debt levels of several large utilities. Enerdatics also observes that vertically integrated utilities can boost the profit margins of their renewables activities by ensuring that their generation assets are located in the same market as their transmission network, which would lead to lower transmission costs.
This strategy is underscored by AEP’s recent sale of its 1.36 GW unregulated renewables portfolio in the US to the consortium of Blackstone, CDPQ, and Invenergy for $1.5bn. AEP highlighted that the deal will help it de-risk its business and prioritize investments in its core regulated assets, with proceeds from the sale to be allocated to a pipeline of opportunities across its regulated footprint. AEP’s rivals Dominion Energy and Duke Energy also announced intentions to put their unregulated renewables assets up for sale in 2022, claiming that the sale proceeds would help them fund their expansion without tapping debt markets.
Enerdatics believes that the current investment market in the US enables large, integrated energy companies - which have technical capabilities across the entire renewable energy value chain - to take advantage of the full scope of incentives offered under the IRA. Over the next few years, we expect international energy majors with a legacy footprint in the US, such as Enel, ENGIE, and Iberdrola to expand their portfolios significantly via acquisitions from regulated utilities, similar to RWE’s takeover of Con Edison’s clean energy business for $6.4bn in 2022.
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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