While the Inflation Reduction Act that Congress passed on Aug. 12 could help large U.S. utilities develop more interest in contracted renewable generation portfolios that have been put up for sale, the package of incentives will increase their values, industry analysts said.

American Electric Power Co. Inc., Duke Energy Corp. and Consolidated Edison Inc. are each looking to unload their commercial renewables portfolios to pay off debt, invest more capital in their regulated businesses and improve shareholder returns.

The investment and production tax credits for new wind and solar projects will not necessarily improve returns for existing merchant power, but they will increase the value of planned projects, according to Andrew Weisel, Scotiabank director for U.S. utilities and power.

"I think that the revisions to the [legislation] supporting the development of future renewables is going to add to the value of these big platforms, particularly the ones that have big development pipelines," Weisel said in an interview. "Pipelines always have real value … I think more than ever now, the odds of those pipeline projects materializing is very high."

But Barclays director of U.S. power and utilities research Eric Beaumont noted that none of the three companies "really have these long-date, three- and four-year [project pipelines]."

Additionally, the legislation makes it easier for regulated utilities to include solar generation and long-term regulated contracts in their rate base.

"If you want to become a developer, now you don't have to be a tax equity expert to take advantage of some things," Beaumon said in an interview. "On the flip side ... the pie gets bigger, but who gets the pieces of that pie?"

Assets for sale

American Electric Power, or AEP, is selling nearly 2,626 MW of operating capacity, according to S&P Global Market Intelligence data. Since the utility holding company decided to sell Flat Ridge 2 Wind Farm separately, Chairman, President and CEO Nicholas Akins told investors in July that interest in the package is "robust."

For the second quarter, AEP recorded a $146.6 million impairment to its GAAP operations, representing a 29-cent EPS deduction, related to taking its 50% ownership stake in the wind farm out of the larger portfolio for sale, but Akins noted that the company "is in discussions with an interested party" to sell that asset.

Analysts at UBS told clients on July 27 that AEP could sell the rest of its competitive generation business for about $1.5 billion in proceeds.

Meanwhile, Duke on Aug. 4 announced a strategic review of about 5,000 MW of commercial wind, solar and battery projects across the U.S., including 1 GW to 1.5 GW of near-term projects in development, that it expects to complete later in 2022 or in early 2023.

Chairman, President and CEO Lynn Good explained that the potential sale, which represents less than 5% of Duke's earnings, would be used to bolster the regulated business "because there's going to be competition for capital" within the utility. The portfolio has a $4 billion value, including about $1 billion in tax attributes and $1.6 billion in project debt, according to Executive Vice President and CFO Steven Young.

KeyBanc Capital Markets wrote Aug. 4 that it could see the company receiving $4.0 billion to $5.2 billion for the package, "which ... should translate into $2.4 billion to $3.6 billion equity value."

Consolidated Edison, or ConEd, confirmed in February that it will pursue a strategic review of its unregulated Con Edison Clean Energy Businesses Inc. subsidiary, which has about 3,000 MW of planned and operating solar and wind projects as well as a battery project in early development.

"We believe the company should be able to divest of these non-regulated assets at a 13 to 14x EV/EBITDA multiple," Mizuho Securities USA LLC told clients in June. "Given the company has [around] $950 million of [net operating losses], we see no tax leakage, and forecast cash proceeds of $4.1 billion."

Mizuho added that the portfolio is predominately solar with an average power purchase agreement term of 20 years.

Eversource Energy is also looking to monetize part of its unregulated portfolio, pursuing a strategic review of its stake in an offshore wind joint venture with Ørsted A/S. All three projects have long-term contracts, and Eversource has invested $1.5 billion in them through July.

The company expects the Inflation Reduction Act to provide further incentives for unloading the unit and redeploying that capital to debt reduction and the regulated business.

"The enhancements to the renewable energy tax credits [are] going to create substantial value for our projects," President and CEO Joe Nolan said July 29. "All indications we have surfaced in that bill [are] very, very favorable for our business ... we're optimistic this will help us."

Nolan noted that Eversource has had "12 additional inbounds" during the second quarter and that buyers "are not afraid of construction risk."

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