Is Canada's Algonquin Power a Green Energy Company or a Regulated Utility
January 12, 2023
Algonquin Power & Utilities, based in Ontario, Canada, nearly halved its dividend to shareholders, to around C$ 0.40 per year. It is also reducing capital expenditures. The cuts were made to help the company maintain its investment grade credit rating and “deliver solid core growth”, Arun Banskota, Chief Executive, said in a statement to investors today.
Algonquin generates, transmits, and distributes power – both from regulated and independently owned operations - and natural gas and water to 1.2 million customers mainly in the United States and Canada. In 2021, it had $2.2 billion in revenues. Its total assets exceed $17 billion and it has over 3,400 employees,
The company was founded in 1988 by four partners and began by developing several hydroelectric projects in Canada. It has grown through acquisitions, mainly in the U.S. In 2022, its stock market value, currently C$6.6 billion, was cut in half as investors correctly anticipated that rising interest costs would reduce profit, forcing Algonquin to sharply cut its dividend payment to shareholders.
As of September 2022, Algonquin had $10.6 billion in total long-term liabilities, including $7.2 billion in debt. This month, the debt is expected to rise assuming completion of its scheduled purchase of the Kentucky utility and transmission businesses, of American Electric Power, for $2.6 billion including $1.2 billion in debt.
After the purchase, a fifth of Algonquin’s debt will be subject to variable interest rates. A one percent increase in the variable interest rate would result in a roughly $16 million increase in the company’s annual interest costs.
Banskota, 61-years-old, was appointed CEO of Algonquin in 2020. From 2017 to 2020, he was Vice President, Data Center Global Services and Energy Team at Amazon, Seattle, US, responsible for the planning, engineering, and delivery of datacenter capacity for Amazon Web Services.
From 2009 to 2016, he was at NRG, a U.S. utility based in Houston, including as CEO of EVGo, a division operating in the electrical vehicle sector. Earlier, he was a vice president at First Solar, a San Francisco based solar energy company.
From 1997 to 2006, Banskota was Managing Director, Global Power, at El Paso Electric, a U.S. utility, responsible for a 6.5 Giga Watts global portfolio of 32 power plants, project development and approximately 10,000 employees.
He earned an MBA from the University of Chicago Booth School, 1990, and a MA in International Studies from the University of Denver, 1985. There is no information about Banskota’s undergraduate degree in his LinkedIn profile or in his biography on Algonquin’s site.
In 2021, Banskota earned C$5.9 million in salary and stock compensation at Algonquin, according to Morningstar.
More than four Giga Watts, or about 14% of Algonquin’s power generation, comes from renewable sources – with three quarters from hydro and the rest from wind and solar. About 80% of its renewable energy sales are under long-term contracts. Also, about half of Algonquin’s renewable capacity is non-regulated energy which it sells to Amazon, Starbucks, Facebook and other companies, seeking to offset their carbon footprint, typically at higher prices than those charged to regulated customers.
As part of its efforts to reduce interest costs and debt, Algonquin is selling power generating assets while retaining the operations. But, given rising interest rates and the decline in the U.S. stock market last year, the valuation of most assets, especially regulated ones, as well the funding available to buy them have both fallen sharply.
In October 2022, Algonquin sold a 49% stake in a portfolio of three utility-scale wind assets in the US and an 80% stake in Blue Hill, a Canadian wind asset, for a total of $356 million. The assets “benefit from being heavily contracted with the result of de-risked revenue streams, alongside their geographic diversification,” Jack Paris, Head of Americas at InfraRed Capital Partners, which is buying the assets, said in a statement. InfraRed manages about $14 billion in private and public investments for Sun Life, a Canadian insurance company.
Algonquin plans to sell an additional $1 billion of power generating assets in 2023. The question is whether Algonquin is selling its attractive renewable energy assets at a low price. Also, since such assets typically generate higher profits, will their sale hurt the future profit growth of the overall company?
Over the next ten years, Algonquin’s priority, Banskota told BNNBloomberg, is “clearly aligning ourselves with the de-carbonization trend that is happening globally.”
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