Sempra Energy Exits U.S. Renewables Sector
Sempra Energy on April 22 marked its complete exit from the U.S. renewables business as it completed the sale of 724 MW of operating wind generation and battery assets to American Electric Power (AEP) for $1.05 billion.
The San Diego-headquartered utility holding company, which says it has the largest U.S. customer base, said the move is consistent with a strategy to pay down debt and redeploy capital to support the growth of Sempra Energy in North America.
The transaction on Monday is the latest in a series of divestitures over the past year to raise $2.5 billion in proceeds. As Sempra Energy CEO Jeff Martin noted in a February fourth quarter earnings call, it stems from a "deep strategic process" led by the company's board to exit fossil-fired generation as well as renewable generation that began as early as 2014.
"[I]t's very important to make sure we're doing all the right things to advance the clean energy transition, but it's also important that we're doing that in a way which is thoughtful around price, diversity of supply in a balanced energy program," Martin said. Pacific Gas and Electric's recent bankruptcy filing confirmed Sempra's business model, he noted. That includes a "focus on transmission and distribution and the prudence I think that we've shown around a balanced energy approach to the commodity side of the business."
In December 2018, the company completed the sale of its solar assets and battery storage development projects, along with one wind farm, to a subsidiary of Consolidated Edison for $1.6 billion. In February, it also completed the sale of its non-utility U.S. natural gas storage facilities to an affiliate of ArcLight Capital Partners for $328 million in cash, marking its exit from the non-utility natural gas storage sector. The company is currently working to sell its equity interest in its South American businesses including its 83.6% stake in Luz del Sur S.A.A. in Peru and 100% stake in Chilquinta Energia S.A. in Chile.
The sale to AEP completed on Monday includes all or part of seven wind farms and one battery installation in seven states. It includes five projects Sempra jointly owned with BP Wind Energy, which will retain its ownership share of those projects. The projects include Black Oak Getty Wind in Minnesota and Apple Blossom Wind in Michigan. Projects jointly owned with BP Wind Energy include Auwahi Wind in Hawaii (wind and battery storage), Flat Ridge 2 Wind in Kansas, Mehoopany Wind in Pennsylvania, Cedar Creek 2 Wind in Colorado, and Fowler Ridge 2 Wind in Indiana. AEP on Monday said it also acquired all of Sempra Energy's wind projects currently in development.
For AEP, the acquisition aligns with its strategy to slash carbon dioxide emissions 80% from 2000 emission levels by 2050, and to develop a more balanced portfolio. AEP's generation capacity has gone from 70% coal in 2005 to 46% today. A big chunk of this capacity has been replaced by natural gas, the company acknowledges. Its natural gas capacity increased from 19% in 2005 to the current 27%, and its renewable generation capacity has increased from 4% in 2005 to 16% today. AEP's nuclear generation capacity has also increased from 6% in 2005 to 7% today.
"The addition of these high-quality renewable assets and the experience of our new employees will support our long-term strategy to diversify our generation fleet," said Nicholas K. Akins, AEP chairman, president and CEO, in a statement. "We've targeted a total of $2.2 billion in capital investment in competitive, contracted renewables by 2023. 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 percent earnings growth rate."
AEP said the seven wind farms it acquired from Sempra have an average capacity factor of 37%. "All have long-term, power purchase agreements (PPAs) for 100 percent 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," it said.
On Monday, AEP Renewables also said it recently signed a separate agreement to buy a 75% interest (227 MW) in the 300-MW Santa Rita East Wind Project currently under construction west of San Angelo, Texas. AEP Renewables will acquire its share of the project when the project is complete, which is expected in June.
On April 25, the company described its 2019 first-quarter earnings as "solid."
"Our solid performance in the first quarter was driven by our continued focus on needed strategic investments to enhance service for our customers and to maintain a robust, resilient energy grid," Akins said on Thursday. "Our Transmission Holding Co. business also continues to grow, contributing 25 cents per share for the quarter, an increase of 4 cents from the same period last year. Net plant for AEP Transmission Holding Co. increased $1.4 billion, or 19%, since March 2018." The acquisition of Sempra's wind capacity also promised "attractive returns associated with these wind farms will be immediately accretive to earnings and solidify our projected 5% to 7% earnings growth rate," he said.
-Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)
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