The White House’s plans to encourage the expansion of green energy have produced some surprising results.
Consolidated Edison is a case in point. The New York-based gas and electricity provider has struck a deal to sell its clean energy business to Germany’s RWE for $6.8bn, including debt.
The transaction, if completed, will be one of the biggest green energy deals in US history. RWE is paying an enterprise value/ebitda multiple of 11 times. That is nearly twice the multiple of RWE itself.
For that, ConEd can thank President Joe Biden. The Inflation Reduction Act, which Biden signed into law in August, extended generous tax breaks for green energy projects. That has helped drive up the value of US clean power portfolios across the board.
Selling makes sense for ConEd, which has a market capitalisation of $31bn. The company operates about 3.1 gigawatts of utility-scale renewable projects. But these assets, which include solar farms in Texas and California, are primarily in the west and south-west. ConEd’s customers are concentrated in the north-east. Physically getting the power to its core market would be expensive.
US utilities would prefer to invest their capital in transmission grid upgrades and renewable projects within their core, regulated businesses. American Electric Power and Duke Energy are also looking to sell their green energy businesses, which face stiff competition.
There are other reasons for the disposal. ConEd plans to spend nearly $15.7bn in capital expenditure between this year and 2024, which it will not cover with cash flow. Selling its clean energy assets means it can avoid tapping the debt markets just as interest rates are rising.
For RWE, the deal doubles its US renewable portfolio capacity to more than 7 gigawatts. But it is likely to face criticism for choosing to make a large acquisition overseas, rather than invest in its home market at a time when Europe is gripped by an energy crisis. But it may equally win praise from investors for diversifying out of strife-torn Europe and its stagnating economies.
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