During a Nov. 5 investor conference, Avangrid Inc. executives said the company will ramp up investments in renewable energy and position itself as a leading environmental, social and governance energy company while producing higher rates of return, helped by its pending purchase of PNM Resources Inc.
Avangrid executives said the company's $4.32 billion acquisition of PNM and the financial heft and expertise provided by its Spanish parent company, Iberdrola SA, will help it earn authorized rates of return in New York and Maine, states where it has not previously done so, and provide more stable earnings in the coming decade. Over the next five years, the company plans to make some $20 billion in capital investment, including more than $8 billion in renewable energy investments.
Those investments include the $950 million New England Clean Energy Connect transmission project, which will bring Canadian hydropower to New England. The company is planning to start construction in early December.
Once fully consolidated with PNM in 2022, Avangrid expects combined adjusted earnings of $2.36 to $2.60 per share, executives said, assuming the transaction closes by the end of 2021. That is an increase from the 2021 earnings guidance of $2.15 to $2.35 per share.
Dennis Arriola, CEO and director, made the case that the company should position itself as a leader for ESG investors at a time when governments are moving faster to decarbonize power grids as renewable energy prices fall. Avangrid has pledged to be carbon neutral by 2035.
"Note this transition hasn't slackened as a result of the pandemic or the economic softness we witnessed in certain parts of our country," he said, speaking of the global energy transition. "You know, if anything, utilities and energy producers have been even more in the spotlight, given the role they play in providing jobs and stimulating the economy with investments."
Avangrid is the third-largest wind and solar operator in the U.S., according to the company, with 7.6 GW of wind and solar generation capacity and a 20-GW development pipeline, including 5 GW in offshore wind.
Combined, Avangrid and PNM have a market capitalization of $20.3 billion and serve 4.1 million customers with a rate base of $14.4 billion. The resulting company will have assets of more than $40 billion, with 10 regulated electric and gas utilities in six U.S. states.
The two companies have a combined 10,939 MW of generation capacity. Of that, 69.6% is wind; 3.5% solar; 1% hydropower; 6.9% coal; and 18.7% of gas and other generation resources.
By 2025, solar will increase to up to 10% of installed capacity, while offshore wind will make up 19%, executives said at the conference. The U.S. government will make a permitting decision on Avangrid and Copenhagen Infrastructure Partners K/S' proposed 800-MW Vineyard Offshore Wind Project, the first major offshore windfarm in the country, in December. Executives hope the Vineyard Wind project, located 15 miles off the shore of Martha's Vineyard, will come online in 2024. They are also vying for other offshore wind projects along the East Coast as states there aim to install up to 30 GW of offshore wind power by 2035.
Natural gas a 'key enabler of renewable growth'
While Avangrid works to decarbonize, it is not counting out natural gas.
"It's abundant in the U.S., relatively clean and affordable," Arriola said. "Natural gas generation and infrastructure is a key enabler of renewable growth in the U.S. And most studies show that customers still prefer natural gas in their homes for cooking and heating."
Green hydrogen will also "play an important role in the energy transition, although it probably won't make a material impact in our fuel mix for at least another five to 10 years," Arriola said.
He said the company plans to use part of its merchant wind to produce green hydrogen through electrolysis during times of low energy pricing. It could be used to support transportation, industrial processes and heating. He said those uses represent 15% of all global energy demand, and the company plans to take advantage of Iberdrola's green hydrogen strategy "so we can jump-start our efforts in the U.S. at the appropriate time."