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In the past two years, the US has arguably passed the most extensive set of legislation ever to promote renewable energy. These include the Energy Act of 2020, the Infrastructure Investment and Jobs Act of 2021, and the Lower Inflation Act of 2022. However, there are numerous recent reports of large utilities, particularly early adopters in the renewable energy sector, selling or preparing to sell their portfolios of unregulated renewable assets. As might be expected, there appear to be willing buyers for these portfolios, but not other regulated U.S. utilities. To borrow a line from the 1980s rock band the Clash, are utility executives wondering “should I stay or should I go” away from the renewable energy sector? With a seemingly huge tailwind for renewables, what happens to the companies that pay out the money?
A review of a few examples may shed some light on this trend. Company Consolidated Edison Inc. announced in October 2022 that it had signed an agreement to sell its renewable energy portfolio consisting of over 3 GV of operational renewables and 7 GV of development pipeline to international energy holding company RVE AG for $6.8 billion. The deal is expected to close in the first half of the year. ConEd has indicated that it expects to continue investing in clean energy, including electrification, energy efficiency, electric vehicle infrastructure and battery storage.
American Electric Power has informed investors that it expects to sell 1.6 GW of unregulated wind and solar power, with the main portfolio expected to close in the second quarter. The executives indicated that they plan to invest the proceeds in the business transfer sector. Duke Energy announced in August and confirmed in November 2022 that it intends to sell its commercial renewable energy group, which consists of 5.1 GW of unregulated wind and solar projects, as well as a 1,000 MW development pipeline. The proceeds from the sale, estimated at $4 billion, will be invested in the regulated part of the business. Finally, Eversource Energi announced that it may sell its offshore wind assets consisting of a 50% joint venture with Ørsted A/S. The JV has three contracted development projects with a capacity of 1,758 MW expected to be commissioned by the end of 2025. The sale proceeds are expected to be used to finance the company’s regulated energy and water delivery networks.
An interesting phenomenon occurred when electricity deregulation prompted many utilities to sell their generating assets. The sale price in $/MV for the production portfolios versus time appeared graphically as a bell curve with early sales yielding lower yields. Prices peaked for a few years and then fell again. Could there be a sweet spot for selling renewable energy portfolios as well, and why are sales happening at all? Most utilities that plan to sell have indicated that they want to reinvest in their core business. They may expect the renewable energy market to be flooded with new incentives and returns on investment will decline, returns will not match the risks, or simply, utility planners believe their investors want certainty and predictability in today’s volatile markets from a full commitment of regulated assets.
While all of the companies cited above seem focused on trading their unregulated investments for regulated utilities, there are plenty of players willing to take on the risks and potential rewards of private renewable energy portfolios. ConEd’s suitor, RVE AG, is one example. Also, Engie North America, part of another global energy company, recently acquired a 6-GV portfolio of solar and battery storage projects being developed by Belltown Power US North American Electric Reliability Corporation (NERC) recently announced a strategy to manage as much as 30,000 MW only one type of DER, distributed solar capacity, is expected to be online between 2022 and 2031. With large blocks of DER potentially controlled by aggregators, cybersecurity and distributed energy system reliability, resiliency and flexibility are among NERC topics will follow.
Reliance on traditional functions within each utility’s wheelhouse, including conservation, bulk transmission, energy efficiency and demand response, were cited by grid operators and utilities that survived California’s September 2022 extreme heat wave, as well as those planning to potential fuel shortages in the Northeast during the winter of 2022-2023. No one believes that renewable energy sources can solve every emergency, especially in the short term. However, no one doubts the potential tsunami from renewable sources. The question remains, who will own and manage these resources?
A large transition of renewable energy sources can have a double meaning: a transition to greater reliance on renewable sources and a transition of ownership of renewable energy sources, especially production, from the regulated utility sector. Ultimately, however, markets have a way of rebalancing. So we’ll see what happens.
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