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Energy company ALLETE, Inc. (ALE - Snapshot Report) entered into an agreement with The AES Corporation (AES - Analyst Report) to acquire certain wind generation assets from the latter. The wind generation assets span the three states of Minnesota, Iowa and Oregon.

The total output of these winds farms will come to 231 Megawatts (MW).  ALLETE, Inc.’s subsidiary, ALLETE Clean Energy expects to close the deal in early 2014 for a consideration of $27 million. All these wind units have existing long-term service agreements for their entire output. The transaction is expected to be accretive to ALLETE’s earnings from 2014.

The acquisition of these wind assets is in sync with the long-term strategy of the company. ALLETE has plans to expand its operations across different markets in the U.S. and serve more customers. This would inevitably boost the revenue stream of the company.

In addition, the company is working to expand its green power generation through the organic route. ALLETE Clean Energy has plans to invest in the range of $50 million to $150 million in renewable assets. The renewable portfolio comprises energy sources ranging from wind, hydropower, biomass to other emerging technologies.

We believe putting more emphasis on green power generation will allow the company to meet the existing renewable generation mandates of the different U.S. states. In addition, the U.S. Environmental Protection Agency (EPA) is increasingly being stringent on granting permission for setting up new fossil fuel based power plants. In this light, investing in renewables makes even more sense for energy companies like ALLETE.

The present acquisition agreement includes a clause, which provides ALLETE Clean Energy with an option to add one more wind asset in Pennsylvania in mid 2015. If the company exercises this option it will add another 101 MW of wind generation to its existing portfolio. This wind asset presently has two long-term power purchase agreements.

We believe the increasing awareness, more states implementing renewable generation standards, ALLETE’s eagerness to expand its green portfolio and a nearly one-year contribution from the other three acquired winds assets will induce the management of ALLETE to go in for the Pennsylvania buy.

ALLETE currently has a Zacks Rank #4 (Sell) as it failed to beat the consensus earnings estimates in the last two quarters. Other operators in the industry doing well include Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report) and Alliant Energy Corporation (LNT - Snapshot Report), each with a Zacks Rank #2 (Buy).

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