The full benefits of Avangrid’s recent Vineyard Wind joint venture deal with Copenhagen Infrastructure Partners are not yet “fully appreciated” by the stock market, CEO Dennis Arriola said Wednesday.
With the completion of a JV restructuring in January, Avangrid Renewables, the U.S. offshore wind arm of Avangrid (NYSE:AGR), now solely owns a 4.5 GW project portfolio along the East Coast, Arriola said during an earnings call Wednesday.
“This control allows us to more easily deliver incremental value and future growth and to fully capture the value of our offshore wind investment,” he said, adding that the value is not “reflected” in Avangrid’s stock price.
On Thursday, the company’s shares opened at $42.50 and had a 52-week range of $42.24-$55.57, according to Yahoo Finance.
Avangrid and CIP agreed last fall to split up the assets of their Vineyard Wind JV. They closed the transaction in January, allowing Avangrid to buy the lease area (OCA-A 0534) that has the proposed 804-MW Park City Wind project and the 1.2-GW Commonwealth Wind project. In turn, CIP took full control of a nearby lease area (OCS-A 0522), and the companies are continuing to co-develop the 800-MW Vineyard Wind 1 project.
Avangrid’s total OSW portfolio is 4.9 GW, which includes Park City, Commonwealth, half of Vineyard Wind 1, and the estimated 2.5-GW Kitty Hawk lease off the cost of North Carolina.
“By being an early mover in offshore, we have lease areas which are undervalued based on current market prices,” Arriola said.
Avangrid paid $168 million for the lease area where Park City and Commonwealth are sited. Together with the location of Vineyard Wind 1, the lease areas are “currently valued in the hundreds of millions of dollars,” he said.
That estimate, he added, is “before we continue to develop the portfolio and further increase its value.”
Avangrid’s transaction with CIP will allow the company to generate a gain of $175 million for the first quarter of this year, Arriola said. By securing direct ownership of its portfolio, the company can control project financing structures, including new partnerships that will generate further gains beyond what it will report for the current quarter.
“There are various potential partners that don’t want [power purchase agreement] or permitting risk, but they’re able to pay a higher valuation premium for a piece of a project once those development steps have been completed,” Arriola said.
Avangrid Renewables is an approved bidder in the Bureau of Ocean Energy Management’s (BOEM) New York Bight OSW lease area auction that started Wednesday. The bids for six lease areas ranged between $140 million for 43,000 acres and $900 million for 126,000 acres when BOEM took a recess in bidding at the end of Thursday. By comparison, the company Offshore MW paid $150,197 in 2015 to secure the 167,000-acre original lease area covering Vineyard Wind 1, Park City and Commonwealth.
Earnings
Avangrid, which is a subsidiary of Spain-based Iberdrola, reported 2021 earnings of $707 million ($1.97/share), up $126 million ($0.09/share) from 2020. For the fourth quarter, the company reported earnings of $164 million ($0.42/share), down $2 million ($0.12/share) from the same period in 2020.
For the renewables unit, Avangrid reported a loss of $14 million ($0.04/share) in 2021, compared with a $4 million ($0.01/share) loss in 2020. The company reported renewables unit earnings of $131 million ($0.37/share) for the fourth quarter, up $28 million ($0.04/share) from a year earlier.
