Algonquin to exit renewables for less risky 'pure play' regulated utility model
Canadian player to sell 2.3GW of competitive hydro, solar, and wind generation capacity in its home market and US to enhance shareholder value
Algonquin Power and Utilities (AQN) on Thursday announced the sale of its competitive renewable energy business in Canada and US, the latest utility in North America to exit in pursuit of higher returns elsewhere to enhance shareholder value.
The company, based near Toronto, did not disclose a timeframe to conclude the transaction. JP Morgan will act as financial advisor.
“We are confident that the intended sale will unlock AQN’s value as a pure-play regulated utility by simplifying our structure,” interim CEO Chris Huskilson, said in a statement.
He added the move will also allow Algonquin to focus on “lower risk regulated investment opportunities, with greater operational efficiency and capital discipline.”
As of 1 January 2022, its Renewable Energy Group had hydro, solar, and wind facilities comprising 2.3GW of nameplate generation capacity in 11 US states and six Canadian provinces. Despite its name, the division also has about 400MW of thermal plants.
Roughly 81% of that capacity is contracted with “creditworthy counterparties,” according to the company, with PPA length averaging 10 years.
Algonquin claims the renewables unit has a development pipeline of more than six gigawatts in North America. Near-term projects include seven solar facilities totaling 452MW and two wind farms with 196MW capacity.
The company owns regulated utilities in 10 US states, one Canadian province, Bermuda, and Chile. Several supply electricity, natural gas, and water, while most provide one or two.
Algonquin’s decision after a “strategic review” comes on the heels of similar moves by American Electric Power, Consolidated Edison, Duke Energy, PSEG in New Jersey, and Sempra to divest lower margin clean and renewable energy assets and focus on their core regulated utilities.
A notable exception to this trend is NextEra Energy whose Energy Resources unit is the largest battery storage, solar, and wind developer, owner, and operator outside of China.
While last year’s landmark climate law provides generous long-term tax credits that will turbocharge demand for clean energy, developing the necessary resource to meet it is proving economically challenging for a variety of reasons.
These include grid congestion, growing political risk at the federal level, inflation, lengthy interconnection and permitting hurdles for both generation and transmission, supply chain bottlenecks, and US trade policy enforcement uncertainties, particularly for solar products.
Other issues are growing resistance from communities, politicians, and private landowners in some states with abundant renewable resource like Texas to another decade of runaway wind development, and a declining number of suitable sites for large projects.
President Joe Biden’s executive agencies and Federal Energy Regulatory Commission are working to address these issues but there is a limit to level and scope of intervention from Washington, DC, that Republican states and local communities of all political stripes will tolerate.
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