AES Offloads Indian Wind Unit

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Virginia-based AES Corp. (AES) divested its 100% shareholding in an Indian wind farm – AES Saurashtra Windfarms Pvt Ltd – to the country’s largest industrial group Tata Power Co. for an undisclosed amount.

The wind farm, located in Dwarka, Gujarat, has a power purchase agreement with Gujarat Urja Vikas Nigam for the sale of electricity at a tariff of INR 3.56 a unit. The project has 49 wind turbines of the Enercon E-53 make with 800 kilowatt (KW) rated capacity.

Tata Power acquired the 39.2 megawatt (MW) asset through its wholly-owned subsidiary Tata Power Renewable Energy Ltd. The acquisition has boosted its current capacity by 10% to 437 MW.

In 1992, AES first entered the Indian market for the development of a thermal power plant. In 1998, the company took over a 49% stake in Odisha Power Generation Corporation (:OPGC) through an international competitive bid process.  OPGC owns and operates a 420 MW coal fired power plant. AES’ solar power projects in India comprise AES Chhattisgarh Energy Pvt. Ltd., AES Solar Energy Gujarat Pvt Ltd, and AES Solar Energy Pvt Ltd in Rajasthan.

AES Corp. is continuously working to exit markets and businesses where it does not have and cannot develop a compelling competitive advantage. Since Sep 2011, the company has made 16 asset sales representing $1.1 billion in equity proceeds to AES and has exited operations in 7 countries.

With more asset sales and cash coming in, the company would focus on its cash deployment strategy. During the second quarter of 2013, the company repurchased 5.3 million shares at an average price of $11.81 per share, for a total of $63 million.

The company is investing considerably in capacity expansion in the power hungry regions of Latin America and Asia and working on new projects to leverage strategic relationships and maximize returns.

AES’ power generation portfolio is skewed towards coal and gas, thereby increasing the burden of green investments. Again, President Obama’s climate change strategy to check pollution from existing coal-fired power plants has raised our concern. He issued directives asking environmental regulators to set up carbon pollution standards for active plants. While eroding the company’s margins, this would also increase capital expenditures for the installation of more clean energy generating plants.

The company presently has a short-term Zacks Rank #3 (Hold). Other stocks worth considering in the space are Brookfield Infrastructure Partners L.P. (BIP), Alliant Energy Corp. (LNT), Korea Electric Power Corp. (KEP), all with a Zacks Rank #2 (Buy).

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Read the Full Research Report on AES
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