AVANGRID (AGR) to Gain From Investments Amid Merger Delay
AVANGRID Inc.’s AGR long-term capital expenditure plans are expected to further aid its infrastructure and facilities. The company’s expanding wind and solar generation portfolio act as a tailwind.
However, the company has to face certain headwinds, such as delay in the closure of PNM Resources’ deal and constraints related to new projects.
Tailwinds
AVANGRID consistently spends capital to maintain and upgrade its infrastructure and facilities. It invested a total of $2.7 billion in 2022, with nearly 71% in its Networks segment and the rest in its Renewables segment. AGR plans to invest $3 billion in 2023 to strengthen its operations. It invested nearly $1.3 billion in the first half of 2023.
The company is consistently expanding its clean energy generation capacity by adding more wind and solar sources to its portfolio. In April 2023, it signed a Memorandum of Understanding with Navajo Tribal Utility Authority. The agreement aims at exploring opportunities to develop up to 1 Gigawatt of green energy projects within the Navajo Nation in the states of New Mexico and Arizona.
In March 2023, AVANGRID announced that it is set to utilize $30 million worth of high-quality solar trackers from the New Mexico based company, Array Technologies (ATI), to develop a 321-Megawatt (MW) solar farm in Texas. The company has increased the presence of sustainable energy in Texas, where it currently produces more than 1,250 MWs through six wind farms and has a pipeline of 1,300 MWs projects.
Headwinds
The delay in the proposed merger of PNM Resources with AVANGRID may adversely affect the latter’s benefits. It can result in additional pre-tax transaction costs and a loss in revenues associated with the uncertainty about the merger.
AGR keeps investing in development opportunities but timely completion of the same and that too within budget might not be possible, which might adversely impact its financial condition and prospects.
Transition in Energy Space
The U.S. electric power sector is gradually moving toward cleaner sources of energy to produce electricity. Most of the companies target replacing fossil fuels with renewables and believe in the development of new technologies such as energy storage and hydrogen. They have pledged to deliver 100% clean energy and achieve the zero-emission target in the coming years.
To reap the benefits of the expanding renewable energy market, certain companies from the industry such as Xcel Energy Inc. XEL, PPL Corp. PPL and Ameren Corp. AEE are also transitioning faster toward clean energy.
Xcel Energy aims to spend $29.5 billion during 2023-2027, which excludes $2-$4 billion of potential incremental investment opportunities planned in the same time frame. The company is reducing coal consumption and targets to lower emissions by at least 80% by 2030 and achieve carbon neutrality by 2050.
XEL’s long-term (three- to five-year) earnings growth rate is 6.34%. The Zacks Consensus Estimate for its 2023 earnings indicates an increase of 5.4% from the 2022 reported figure.
PPL expects a regulated capital investment plan of $12 billion during 2023-2026 and plans nearly $2.5 billion in capital investments for 2023. The company aims to achieve its carbon emissions target of 70% by 2035 and of 80% by 2040, from its 2010 level. It will do so through the introduction of new carbon capture technology and addition of more renewable sources to its generation portfolio.
PPL also targets to become carbon neutral by 2050. Its long-term earnings growth rate is 7.42%. The Zacks Consensus Estimate for 2023 EPS indicates a year-over-year improvement of 12.8%.
Ameren expects to spend up to $20.5 billion in the 2023-2027 period. AEE targets to reduce its carbon emissions by 60% within 2030 and by 85% within 2040. It expects to achieve its net zero carbon emissions target by 2045.
AEE’s long-term earnings growth rate is 6.43%. The Zacks Consensus Estimate for 2023 EPS indicates a year-over-year improvement of 5.6%.
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