What a $6bn deal shows about where US wind market is headed

US onshore wind merger and acquisition activity is gaining pace as BlackRock’s Global Infrastructure Partners (GIP) and Canada Pension Plan Investment Board (CPPIB) will pay $6.2bn for Minnesota-based utility Allete.

Allete’s Clean Energy subsidiary is a leading mid-size independent wind developer in the country’s blustery Plains region and Upper Midwest with nine facilities in operation totaling 1.25GW nameplate capacity.

GIP is an infrastructure investment fund with multiple clean and fossil energy-related businesses in the US and globally. CPPIB, a Crown corporation, is Canada’s largest pension fund with C$731bn ($524bn) in private contributions under management as of 30 June.

The deal, which obtained final state regulatory approval on Friday and is set to close this quarter, also won blessing from President Donald Trump’s administration despite US-Canada relations at their lowest level in decades.

The green light follows LS Power’s acquisition in July of BP’s 10-project, 1.3GW wind business and Brookfield Asset Management’s purchase of National Grid Renewables (NGR) in February for a reported $1.74bn.

NGR, in turn, comprises the former Geronimo Energy, another prominent mid-size wind developer that it acquired in 2019. Brookfield has re-branded NGR as Geronimo Power.

Last week, GIP was reported as having tabled a $38bn bid to acquire power giant AES Corp, the third largest US-owned independent wind asset owner and fifth for clean energy.

Overdue for consolidation

The capital-intensive onshore wind sector is overdue for consolidation.

New developments and facility re-powering are increasingly costly and problematic for smaller players – and even larger ones - amid federal permitting hurdles, tight tax credit eligibility and sunset windows, and supply chain challenges.

With the easy money already made in onshore wind, particularly with historically low interest rates earlier this decade and unprecedented Inflation Reduction Act subsidies, getting out can make financial sense - even more so with a hostile Trump clouding the sector outlook.

Independent Power Producers (IPPs) such as Allete Clean Energy that focus exclusively on wind are rare in a market where customers increasingly want a mix of renewables, natural gas, and nuclear.

If value is assigned to reliability, wind is arguably not cheaper without subsidies than the market price of conventional power in some regions of the country.

That places a premium on being able to develop wind energy at the lowest possible cost, an advantage held by the biggest players such as NextEra Energy and European heavyweights here such as EDP Renewables, Enel Green Power, Iberdrola, and RWE.

The flip side is there is no shortage of private capital for contracted operating wind farms and those under construction that can, with certainty, generate in a market where robust demand will drive up electricity prices and asset valuations.

The investor market is deep with corporates, endowments, family offices, pension funds, and strategics. That makes it a good time for certain IPPs to sell.