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Con Edison renewables portfolio sale portends high valuations for similar assets

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Con Edison renewables portfolio sale portends high valuations for similar assets

Utility analysts are optimistic that the $6.8 billion premium German power company RWE AG plans to pay for Consolidated Edison Inc.'s competitive renewable energy generation portfolio indicates the potential for similar outcomes with other sales by Duke Energy Corp., American Electric Power Co. Inc., PG&E Corp., Eversource Energy and Avangrid Inc.

The transaction price for Con Edison Clean Energy Businesses Inc., which operates about 3 GW of capacity and has a development pipeline of more than 7 GW, is higher than both Wells Fargo Securities' $6.5 billion and Guggenheim Securities LLC's $5 billion to $6 billion valuation expectations, investment research teams told clients Oct. 2 and Oct. 3. Mizuho Securities USA LLC said the deal is "mainly in line with our expectations of a 13-14x [enterprise value-to-EBITDA] sale multiple."

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Both Guggenheim and KeyBanc Capital Markets noted that the price tag is a positive sign that buyers will also pay top dollar for other competitive renewables portfolios on the market, particularly in light of the Inflation Reduction Act's package of tax incentives that RWE CEO Markus Krebber said made the ConEd acquisition "even more attractive."

"The transaction sets a constructive valuation precedent for generation assets and highlights a broad level of interest in U.S. infrastructure assets," Guggenheim wrote, while KeyBanc noted that the Inflation Reduction Act's provisions "should provide a step-up for renewable portfolio valuations, and it's encouraging to see that materialize."

Avangrid on Sept. 22 announced it will seek partnerships of up to 50% across its offshore wind portfolio, reduce its share of certain onshore renewables projects under development to 40% and sell part of the Kitty Hawk Offshore Wind Farm project's lease for approximately $100 million before taxes as part of a strategic review to optimize the utility company's balance sheet.

PG&E Corp. recently unveiled a plan to separate subsidiary Pacific Gas and Electric Co.'s non-nuclear generation portfolio into another company and sell a minority interest in that new entity to provide the California utility with greater financial flexibility to manage fire victim payouts and debt.

PG&E Corp. told the California Public Utilities Commission it "anticipates that the investment is likely to be attractive to entities that seek a regulated revenue stream, such as pension funds, infrastructure funds, or sovereign wealth funds."

Similar to PG&E Corp, ConEd is likely to use the sale proceeds to avoid issuing near-term equity, Guggenheim said, but Mizuho analysts are confident the company could both satisfy equity needed for 2023 and 2024 and pay down $1.1 billion of parent debt, return $2.1 billion of capital to shareholders and shore up Consolidated Edison Co. of New York Inc.'s equity.

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