AES, one of the world’s largest energy companies worth some $37 billion, operates 35,000 megawatts in power plants across the globe. However, within a few weeks, this will all change. By acquiring sPower, this M&A transaction poses a new trend to the renewable energy sector: purchasing larger portfolios verses a project management approach to grow developing assets.
On February 24th, AES announced that it plans to acquire sPower in a $853 million cash deal from the private equity firm Fir Tree Partners. sPower is the largest independent solar developer in the United States. As it currently stands, only 200 megawatts of AES’ portfolio is derived from solar energy. This deal will substantially increase the company’s solar energy output.
When this transaction closes as expected in Q3 2017, an additional 1,274 megawatts of solar power plants will be added to AES’ portfolio, as well as 10,000 megawatts from various other projects in different stages. In total sPower has 1.3 gigawatts of capacity as well as an average remaining contract life greater than 20 years.
sPower’s utility-scale projects are primarily located in California and North Carolina, while its distributed generation assets are clustered mostly in the North East, and also in California. The company also brings a US development pipeline greater than 10 gigawatts.
The acquisition is being completed in conjunction with the Alberta Investment Management Corporation (AIMCo) who will take a 50% equity stake in all sPower’s projects. AES will take the remaining 50%, as well as control of sPower’s operations.
This is a definitive and significant move by AES into utility-scale solar, a move which the company has attempted to make since as early as 2015. That year, the company acquired Main Street Power, a developer of distributed solar projects, and rebranded it AES Distributed Energy. At the same time, AES has also attempted to enter the market by acquiring small individual projects. Thus far, these attempts have failed to make AES a significant player in the distributed solar market.
These types of acquisitions have been called “platformization” by some, referring to the purchase of large utility-scale and commercial solar facilities as a way to increase operating capacity. More and more of these large energy companies are on the lookout for sizable portfolios that are up for grabs as opposed to developing assets more slowly on a project-by-project basis.
For instance, just in the past 6 months JP Morgan purchased Sonnedix, Cypress Creek Renewables purchased FLS Energy, NRG Energy acquired 1,500 megawatts from a SunEdison project, and Mitsui gained SunEdison’s commercial development team. Many believe this to be indicative of an ongoing trend in which M&A becomes the means for scalability. The buyers in this space are looking for acquisitions that have a long queue of projects to satisfy the next few years.
AES’ acquisition of sPower is the largest M&A in this market since the purchase of First Wind by SunEdison in 2014 for $2.4 billion, but the trend of “platformization” does not seem to be slowing down. sPower, for example, is a solar developer that retains its assets for its own use, further supporting the thesis that AES and other conglomerates in the space are making these acquisitions with intentions of scalability.
When this transaction is completed, AES’ renewable energy portfolio will increase from 8,278 megawatts to 9,552 megawatts. This includes projects both in operation and under construction, comprised on hydro, wind, solar, and energy storage capacities.
