EUR 850.00 For Business Accounts Only

Morningstar | Poor Wind Resource Continues for Avangrid's Renewable Assets

Avangrid was born from the public listing of European utility Iberdrola's U.S. unit and its subsequent combination with UIL Holdings. Iberdrola continues to hold a 81.5% ownership interest.Avangrid investors must be comfortable with regulated operations across the Northeast and the outlook for the U.S. renewable energy growth. Avangrid's regulated utility segment, or Networks, operates eight regulated electric and natural gas utilities across New York, Maine, Connecticut, and Massachusetts.The utilities' regulatory jurisdictions are constructive, with 85% of rate base operating under multi-year rate agreements or under FERC formula rates. Awarded allowed returns are average with its peers, but the utilities are allowed sharing mechanisms to balance any over- or underperformance in a given year. Management must work with regulators to defer recovery of numerous smaller storms, which aren't allowed under the current regulatory construct. This can be done through regulatory mechanisms as well as additional resiliency investments.Avangrid's renewable energy development subsidiary, Renewables, is the third-largest developer of wind energy in the U.S. It owns approximately 7 GW of wind and solar energy capacity across the U.S. We forecast Avangrid will install 2,500 MW of new renewable energy capacity in development and 10 gigawatts of development opportunities during the next five years.Recently poor wind resource, due to extreme weather conditions and lower than normal wind conditions, has negatively affected the earnings power of Avangrid's wind assets. A return to normal returns from these assets is important for Avangrid to meet its long-term earnings objectives.We expect current state renewable energy policies and improving economics will support growth beyond our five-year outlook. Additionally, Avangrid is positioned well to invest in offshore wind projects during the coming decade, as the Northeast looks to the Atlantic to meet its aggressive state renewable energy requirements.