American Electric Power Co., Inc.’s (AEP - Free Report) subsidiary, Southwestern Electric Power Co. (SWEPCO), recently announced that it has received the regulatory sanction from Louisiana Public Service Commission (LPSC) to proceed with the Wind Catcher project. Notably the project involves a significant investment worth $4.5 billion.
On completion, this project is likely to further expand the company’s renewable generation portfolio that comprised contracted projects worth 400 megawatts (MW) as of Mar 31, 2018. However, it remains subject to the approval of state commissions in Texas and Oklahoma.
Details of the Deal
The Wind Catcher project involves the acquisition of a 2,000 MW wind generation facility by American Electric. Currently, it is under constructionat Oklahoma Panhandle.The project also covers construction of an approximately 350-mile dedicated power line that will carry the wind energy to the Tulsa area, which will then be delivered through the company’s existing grid.
While, SWEPCO will own 70% of the project, another subsidiary of American Electric — Public Service Company of Oklahoma (PSO) — will own 30% of the same. SWEPCO and PSO will purchase the facility once construction is over, in the fourth quarter of 2020.
Benefits of the Project
Per SWEPCO, the project will save its customers more than $4 billion over the 25-year life of the wind farm compared with the projected costs of buying power in the open market.Therefore, customers of American Electric should realize savings in their bills, primarily through a reduction in the fuel portion of bills, beginning in 2021.
The 800 wind turbines to be installed in the farm will supplied by GE Electric’s (GE - Free Report) subsidiary, GE Renewable Energy and manufactured in Louisiana. Thus, the construction of the Wind Catcher project will increase the manufacturing activity in Louisiana, thereby boosting the state’s economic growth.
Why Wind Energy?
A report from the U.S. Energy Information Administration (“EIA”) shows that wind power generation will surpass hydroelectricity in the United States, in 2018. To this end, the EIA expects wind capacity to increase by 8.3 GW in 2018 and 8 GW in 2019.
According to the Renewable Energy: United States report of December 2017,the cost of wind turbines is the single largest component that makes up for 70% or more of the entire cost of a land-based wind project. Markedly, wind turbine prices have fallen by around half since 2010.
This, in turn, has made the construction of wind power projects cheaper, thereby setting the stage for utility providers like American Electric to make valuable investments in wind projects like the Wind Catcher farm.
Moreover, being the largest single-site wind project in the United States, Wind Catcher will surely offer American Electric a competitive advantage over other utility providers that are also trying to reap benefits of the expanding wind energy market.
Other Utilities Following Suit
According to the Renewable Energy: United States report, demand for wind energy is likely to rise 7.2% by 2021. This has prompted other utility providers to make notable investments in wind energy for expanding their clean energy portfolio. For instance, NextEra Energy, Inc.’s (NEE - Free Report) subsidiary, NextEra Energy Resources, recently announced a renewable energy partnership program with AT&T Inc. (T - Free Report) . Per the power purchase agreement (PPA), the partnership will acquire 300 MW of wind energy from two new wind farms in Wilbarger and Hardeman Counties, Texas.
With the Global Wind Energy Outlook expecting wind power to supply up to 12% of global electricity by 2020 (as per the Global Wind Energy Council) and the United States being one of the largest global wind markets, we may expect to witness more such wind project developments in the nation.
Zacks Rank & Price Movement
American Electric currently has a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In a year’s time, shares of American Electric have lost 8.5% compared with its industry’s decline of 6.2%.The underperformance may have been caused due to expenditures incurred by the company for meeting proposed environmental regulations.
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