Deal details: With the transaction, Brookfield will assume the entire ownership of Duke Energy Renewables’ extensive unregulated pipeline, which consists of ~5.9 GW of operating and in-construction assets and 6.1 GW of development projects. Over 90% of the company’s cash flow comes from energy offtake contracts with a weighted average remaining life of 13 years from strong investment-grade counterparties.
Deal rationale: For Duke Energy, the move mirrors a similar strategy deployed by AEP and Consolidated Edison to sell its unregulated business division and shift its focus towards regulated markets. This strategic move is driven by the desire to evade intense competition in unregulated markets, which was recently exacerbated after the enactment of the Inflation Reduction Act (IRA). By concentrating on regulated power markets, Duke Energy aims to benefit from a more stable power price environment, minimizing uncertainties associated with project financing and earnings. This approach becomes especially crucial given the mounting debt levels of many major utilities. Moreover, the proceeds from the sale will provide utilities with the means to finance their expansion plans without relying on the debt markets, which have become costlier due to rising interest rates.
For Brookfield, the acquisition will significantly increase its renewable portfolio in the country, reaching ~90 GW across different life cycles. This move allows Brookfield to capitalize on the advantageous tax credits and incentives provided under the Inflation Reduction Act (IRA). In 2022, the company allocated around $6.4bn of capital to expedite both organic growth within its current operations and the acquisition of new complementary platforms. This included the purchase of Urban Grid, Standard Solar, and Scout Clean Energy, aligning with Brookfield's strategic objective of expanding its presence in the renewable energy sector.
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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