American Electric Power (AEP) announced that its competitive renewable energy subsidiary has signed an agreement to acquire Sempra Renewables and its 724 MW of operating wind generation and battery assets for close to $1.056 billion (including $551 million in cash, assumption of $343 million in existing project debt and $162 million in tax equity obligation). The final acquisition cost will be subject to closing and working capital adjustments.
“Our long-term strategy is focused on diversifying our generation portfolio including expanding our ownership of renewable generation,” said Nicholas K. Akins, AEP chairman, president and CEO. “We targeted $2.2 billion of capital investment in competitive, contracted renewables by 2023. Adding these high-quality renewable assets to our portfolio will achieve a significant portion of that goal this year.”
Sempra Renewables, a subsidiary of Sempra Energy, jointly owns all or part of seven wind farms and one battery installation in seven states. Five of the wind farms are jointly owned with BP Wind Energy. BP Wind Energy will retain its ownership share of those projects.
“The long-term contracts and attractive returns associated with these existing assets will be immediately accretive to earnings and solidify our projected 5 to 7% earnings growth rate,” added Akins. “The business also includes a pipeline of development projects that could provide additional value.” AEP reaffirms its 2019 operating earnings guidance range of $4.00 to $4.20per share.
The seven operating wind farms have an average capacity factor of 37%. They are located in Colorado, Hawaii, Indiana, Kansas, Michigan, Minnesota, and Pennsylvania. They all have long-term, power purchase agreements (PPAs) for 100% of the energy produced with investment-grade investor-owned utilities, municipal utilities, and electric cooperatives. The project PPAs have an average remaining life of 16 years. AEP operating units AEP Ohio, Indiana Michigan Power and Southwestern Electric Power Company have PPAs with two of the wind farms.
AEP expects to finance the acquisition with a combination of debt, equity, and/or equity-linked securities. The transaction is expected to close in the second quarter of 2019 and is subject to approvals from the Federal Energy Regulatory Commission and Hart-Scott-Rodino clearance. AEP Renewables has also signed a separate agreement to purchase a 75% interest (227 MW) in the Santa Rita East Wind Project currently under construction west of San Angelo, Texas. AEP will acquire its share of the project upon completion in mid-2019.
The company’s competitive renewable generation portfolio currently includes 351 MW of contracted renewable generation including wind and solar projects in Texas (261 MW wind), California (20 MW solar), Nevada (50 MW solar), and Utah (20 MW solar). The portfolio will grow to 1,302 MW of renewable generation in 11 states after close of the Sempra transaction and completion of Santa Rita, making AEP the seventh largest utility owner of competitive wind generation in the United States.
AEP has announced a plan to cut its carbon dioxide emissions 60% from 2000 emission levels by 2030 and 80% from 2000 emission levels by 2050. The company is developing a more balanced portfolio of power generation to help achieve those targets. AEP’s generation capacity has gone from 70% coal-fueled in 2005 to 47% today. Its natural gas capacity increased from 19% in 2005 to 28% today, and its renewable generation capacity has increased from 4% in 2005 to 14% today. After closure of the Sempra transaction, AEP’s renewable generation portfolio will increase to 16%, coal will be 46%, natural gas will be 27% and nuclear generation will remain the same.
Wells Fargo Securities LLC served as the exclusive financial advisor and Bryan Cave Leighton Paisner served as legal advisor for AEP for the transaction.