Dive Brief:
- PPL Corp.'s merchant generation spin-off Talen Energy announced on Thursday that it had reached agreements to sell three of its power plants in Pennsylvania for a combined $1.51 billion, according to a press release.
- One of the plants, the 704-MW Ironwood combined-cycle natural gas plant, will be sold to a TransCanada subsidiary for $654 million.
- The two other plants -- the Holtwood and Lake Wallenpaupack hydroelectric facilities, which represent a combined capacity of 292 MW -- will be sold to Brookfield Renewable Energy Partners for $860 million.
Dive Insight:
Although the power plant sales were expected, Talen Energy received "top dollar" for the plants, UBS analysts said in a note. Talen was required to shed certain plants in the PJM market as part of FERC's order approving the creation of the PPL spin-off. Talen Energy has lost half its value on the stock market since the spin-off was formally completed in June 2015.
The deals continue the recent trend of Canadian power players buying up U.S. assets. The latest power plant sales by Talen have increased the amount of Canada-to-U.S. power deals to $11.7 billion this year, according to Bloomberg data.
The Talen power plant sale would give TransCanada, a major owner and operator of energy infrastructure, especially gas pipelines, ownership over about 4,500 MW of generation in the U.S. if the deal closes.
Analysts at UBS Securities have indicated that Canadian power players are drawn to the U.S. market due to high demand growth in certain regions and the financially attractive regulatory model for U.S. utility companies. The influx of Canadian companies buying up U.S. power assets is inflating the dollar values of the deals that are being made, according to UBS.
“Utility assets are more profitable in the U.S. and there are a lot more of them,” Rebecca Hazan, a fund manager at Leon Frazer & Associates, told Bloomberg. She added that Canadian utilities seeking growth are looking to mergers and acquisitions, "and there’s a lot more opportunity in the States.”
And so far, Canadian companies are showing no signs of slowing down.
“You could see that trend continuing,” Jennifer Stevenson, vice president and portfolio manager at the Calgary-based 1832 Asset Management, told Bloomberg. “There are not a lot of independent power assets for sale, or even available, up here.”
Perhaps the most recent and notable deal is Canadian firm Emera's proposed acquisition of TECO Energy for $10.4 billion. The deal came as a surprise to many analysts, who expected major Florida utilities NextEra or Duke Energy to buy up TECO, but it sustains the trend of Canadian companies with a strong appetite for U.S. power assets. Emera itself has been on a acquisition spree over the last few years, buying up assets in the Caribbean, Canada, and the U.S.
Both deals are expected to close in Q1 2016 after the requisite regulatory conditions and approvals are met.
