The renewable energy subsidiary of Ohio-based American Electric Power (AEP) has signed an agreement to acquire Sempra Renewables LLC and its 724 MW of operating wind generation and battery assets.
The deal totals approximately $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.
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, which will retain its ownership share of those projects.
“Our long-term strategy is focused on diversifying our generation portfolio, including expanding our ownership of renewable generation,” states Nicholas K. Akins, AEP’s 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.”
The seven operating wind farms have an average capacity factor of 37%, says AEP. 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 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 Co. 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, expected to close in the second quarter, is subject to approvals from the Federal Energy Regulatory Commission and Hart-Scott-Rodino clearance.
AEP Renewables also recently signed a separate agreement to purchase a 75% interest (227 MW) in Invenergy’s Santa Rita East Wind Project, which is currently under construction west of San Angelo, Texas. AEP Renewables will acquire its share of the project upon completion in mid-2019.
AEP’s renewable generation portfolio currently includes 351 MW of contracted generation, including wind and solar projects in Texas (261 MW of wind), California (20 MW of solar), Nevada (50 MW of solar) and Utah (20 MW of solar).
The portfolio will grow to 1,302 MW of renewable generation in 11 states after the close of the Sempra transaction and the completion of Santa Rita, making AEP the seventh-largest utility owner of wind generation in the U.S.
AEP plans 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 has 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.