The AES Corporation (NYSE:AES) AES recently joined forces with Canada-based investment fund manager, Alberta Investment Management Corporation (AIMCo) in an attempt to capture a larger share of the expanding U.S. renewable energy market. Per the terms of the agreement, sPower — a joint venture between AES Corp and AIMCo — will get merged with AES Corp’s U.S.-based clean energy development business.
The merged entity is going to have development pipeline worth 12 gigawatts (GW), with AES Corp. being its majority stakeholder. The newly formed platform will manage the 2.5 GW of operating clean energy assets and the existing 2.6 GW contracted backlog.
U.S. Clean Energy Prospects
Factors like rapidly declining costs of renewable installations, primarily driven by falling solar module and wind turbine prices as well as technological developments, along with increasing corporate investments in renewables with more companies pledging toward a carbon-free environment, have boosted revenue growth prospects of the U.S. clean energy industry. Moreover, favorable policy adoption by the government like renewable electricity production tax credits (PTC (NASDAQ:PTC)) and preferential feed-in tariffs, as well as increased adoption of renewable portfolio standards (RPS) by states have been fueling growth of the U.S. renewable space.
Expecting these trends to consistently boost renewable energy adoption in the United States, the U.S. Energy Information Administration (EIA), in its latest Short Term Energy Outlook, projects renewable energy to be the fastest-growing source of electricity generation for the nation in 2020. Notably, electricity generation from renewable energy sources is estimated to rise from 17% in 2019 to 21% in 2020.
Rationale Behind the Agreement
Naturally, the aforementioned growth opportunities offered by the U.S. clean energy space tend to attract utilities like AES Corp., which are transitioning toward a greener energy source away from fossil fuel, to enhance their capabilities in delivering greener energy solutions. Therefore, the latest agreement with AIMCo seems to be a strategically fit deal inked by AES Corp., with the merged business set to become one of the top carbon-free platforms.
AES Corp.’s Presence in the United States
It is imperative to mention in view of the aforementioned developments that AES Corp. has a strong presence in the U.S. clean energy market. For instance, in 2019, AES Corp. launched the L??wa’i Solar and Energy Storage Project, the world’s largest operational solar-plus-storage system, with an aim to deliver large-scale renewable energy.
The company has also been enhancing its renewable portfolio through partnership deals like the latest one it signed with AIMCo. To this end, AES Corp’s joint venture (JV) with Siemens AG (OTC:SIEGY) SIEGY (BA:SIEGY) – Fluence – is imperative to mention. This U.S.-based JV sells energy storage solutions and services in 160 countries worldwide. Notably, Fluence has been awarded 690 MW of projects as of Sep 30, 2020, bringing its total backlog to 2.4 GW.
Moreover, in November 2019, AES Corp. and Alphabet (NASDAQ:GOOGL) GOOG entered into a 10-year alliance for the expansion of clean energy projects. Per the deal, both companies would use artificial intelligence and data analytics to modernize the electric grid and support new renewables projects in the United States and Latin America. Surely all these partnership deals will boost AES Corp.’s profits from the U.S. renewable space.
Price Performance
In a year’s time, shares of AES Corp. have gained 12.9% against the industry’s decline of 4.3%.
Zacks Rank
AES Corp. has a Zacks Rank #3 (Hold). A better-ranked stock in the same place is Pinnacle West Capital Corporation (NYSE:PNW) PNW, which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pinnacle West delivered average four-quarter average earnings surprise of 27.15%. The company boasts a solid long-term earnings growth rate of 4%.
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