American Electric Power has sold AEP OnSite Partners, its behind-the-meter energy business, to Basalt Infrastructure Partners. The portfolio is just over 300 MW spread across almost 100 customer sites. AEP put it up for sale in April 2023 and signed a year later. What it gave up says more about AEP's direction than about the price.
Key takeaways
- American Electric Power (AEP) announced on 13 May 2024 that it signed an agreement to sell AEP OnSite Partners to Basalt Infrastructure Partners, and Leap records the transaction as completed on 30 September 2024.
- Leap records the equity consideration for AEP OnSite Partners as about $318 million in cash after taxes and transaction fees, which differs from the $315 million in early reports, and the structured deal value is not disclosed.
- AEP OnSite Partners owns more than 300 MW of projects at almost 100 sites across the US, comprising 253.6 MW of solar and 50.8 MW of battery, fuel cell and peaking generation projects.
- AEP OnSite Partners sells power to schools, municipalities, hospitals and commercial and industrial customers, including 30-year on-site solar arrangements with the cities of Rice Lake and Barron and a 25-year PPA with Green Mountain Power for the Cold River-GM solar plant.
- AEP plans to use the AEP OnSite Partners proceeds to support its financing plan and direct capital to its regulated utility operations, after starting the sale process in April 2023.
What is AEP OnSite Partners?
A company that builds energy assets on its customers' land and sells them the output. Behind-the-meter means the equipment sits on the customer's side of the utility meter, so the power is used on site before it reaches the grid. AEP OnSite Partners was founded in 2015 and is based in Columbus, Ohio.
Leap's record describes them as assets that "require no capital". In this kind of on-site model the provider funds, owns, operates and maintains the equipment, and the customer pays for the energy or service it delivers. That turns a school's solar roof or a hospital's backup generation into a long-dated contract rather than a capital project.
The portfolio is broader than solar. Leap lists combined heat and power, energy storage, electrical substations, fuel cells, waste heat recovery and peaking generation alongside the panels. Of just over 300 MW, 253.6 MW is solar and the other 50.8 MW is battery, fuel cell and peaking capacity.
Why is AEP selling a business that works?
Because it does not fit what AEP wants to be. AEP says it wants to strengthen its balance sheet and direct capital to its regulated operations, where it earns a return on investments approved by state regulators. Its management has been reviewing the portfolio with a focus on core regulated utility operations, risk mitigation and simplification.
AEP OnSite Partners is the opposite of a regulated utility. Its revenue comes from contracts with individual customers across a geographically diverse portfolio, not from a rate base. However well it performs, it competes for capital and attention inside a company whose stated priority is regulated growth.
It is not AEP's first exit from non-regulated renewables. In December 2023 AEP and PNM Resources agreed to sell their New Mexico Renewable Development solar joint venture to Exus. The AEP OnSite Partners sale follows the same logic: turn contracted, non-core assets into cash for the regulated plan.
What do the customer contracts look like?
Long. The examples in Leap's record run for decades. The Rice Lake solar project will supply on-site renewable energy covering part of the City of Rice Lake's consumption for 30 years. The Barron Solar project does the same for the City of Barron, also for 30 years. The Cold River-GM solar plant sells to Green Mountain Power under a 25-year PPA.
That contract length is the point for a buyer like Basalt. Municipal, school and hospital hosts tend to be long-lived institutions that stay put. A portfolio of many small contracts with long tails behaves more like infrastructure than like a development business, which is what an infrastructure fund is set up to own.
Leap also notes that the company has a further 1.1 GW of solar projects under joint ventures. The record does not say how those joint ventures are treated in the sale, so that portfolio should not be read into the price.
How does the price compare?
About $318 million against 304.4 MW works out at roughly $1.04 million per MW. That is an equity figure net of taxes and fees rather than an enterprise value, so it is a guide to the price rather than a precise multiple.
Enerdatics records 112 US distributed generation solar M&A transactions in 2023 and 2024, and only a minority carry a disclosed price. The closest comparable is Duke Energy's sale of its commercial distributed generation business to ArcLight in July 2023, 316 MW for $364 million, or about $1.15 million per MW. Altus Power's purchase of the 121 MW Hyperion portfolio in October 2023 for $121.7 million came in at about $1.01 million per MW, and its 84 MW purchase from Vitol in January 2024 at about $1.40 million per MW. AEP OnSite Partners sits inside that range, a little below the Duke deal it most resembles.
One detail links those comparables. The Hyperion portfolio that Altus Power bought in October 2023 was sold by Basalt Infrastructure Partners and a co-seller. Seven months later Basalt was back as a buyer of a larger, more varied distributed generation platform.
What does the deal signal for US utility-owned distributed energy?
That listed utilities are steadily handing this business to infrastructure funds. Duke Energy sold its commercial distributed generation arm to ArcLight in 2023. AEP has now sold AEP OnSite Partners to Basalt. In both cases a utility sold a contracted on-site energy business to a private infrastructure owner.
The pricing suggests buyers see these portfolios as stable infrastructure. Three of the four priced deals above, AEP OnSite Partners included, fall between $1 million and $1.15 million per MW, with long municipal and institutional contracts underpinning the value.
Both sides were fully advised. RBC Capital Markets and Morgan, Lewis & Bockius advised AEP. TD Securities, as exclusive financial advisor, and Kirkland & Ellis advised Basalt. AEP started the process in April 2023 and signed in May 2024, a year from launch to agreement.
Frequently asked questions
Who bought AEP OnSite Partners? Basalt Infrastructure Partners agreed to buy AEP OnSite Partners from American Electric Power in an agreement announced on 13 May 2024, and Leap records the deal as completed on 30 September 2024.
How much did Basalt pay for AEP OnSite Partners? Leap records an equity consideration of about $318 million in cash after taxes and transaction fees, which differs from early reports of $315 million. The structured deal value is not disclosed.
What does AEP OnSite Partners own? More than 300 MW of behind-the-meter projects at almost 100 US sites, including 253.6 MW of solar and 50.8 MW of battery, fuel cell and peaking generation.
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