Equities

ERG Targets $1.3B US Renewables Investment, Eyes Midwest

ERG to Invest $1.3 Billion in US Renewables, Aiming for a 15% Portfolio Share by 2026 Amid a Surge in Green Energy.

By Athena Xu

5/16, 14:49 EDT
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Key Takeaway

  • ERG SpA plans to invest $1.3 billion in US renewables by 2026, aiming for a 15% portfolio share and doubling its capacity.
  • The company's US expansion targets the Midwest's wind potential, amidst Europe's uncertain energy policies.
  • Despite market challenges, ERG aims to increase shareholder distribution to €1.3/share, leveraging the US's growing renewable energy incentives.

Expanding US Footprint

Italian renewables group ERG SpA has announced plans to significantly expand its operations in the United States, aiming to capitalize on the country's generous incentives for renewable energy. The company intends to allocate approximately half of its planned €1.2 billion ($1.3 billion) investments in the US by 2026. CEO Paolo Merli expressed the company's ambition for the US to become its third most important market, targeting a 15% share of ERG's asset portfolio within the next three years. This strategic move comes after ERG's initial entry into the US market in December, through a $270 million acquisition of a majority stake in a portfolio of wind and solar assets from Apex Clean Energy Holdings LLC.

Doubling Capacity

ERG has set a goal to reach between 500 to 700 megawatts of installed capacity in the US, nearly doubling its current capacity. The company's expansion strategy includes growing its partnership with Apex or identifying similar models to increase its presence in the US market. CEO Merli highlighted the attractiveness of the North American market, citing its large potential for wind capacity, especially in the Midwest, and a more stable regulatory framework compared to Europe's uncertain energy transition policies.

Market Challenges and Shareholder Distribution

Despite the ambitious expansion plans, ERG has adopted a more conservative outlook on its earnings before interest, taxes, depreciation, and amortization (Ebitda) for 2026, attributing this to a challenging market environment influenced by volatile electricity prices and changing regulatory frameworks. However, the company plans to increase its shareholder distribution target to €1.3 per share, up from around €1 per share. Bloomberg Intelligence analyst Alessio Mastrandrea noted that while the new Ebitda guidance may strain ERG's ability to maintain its covenants, the cost of debt remains competitive, and the dividend target appears achievable under favorable market conditions.

Renewable Energy Surge in the US

The US is poised for a significant increase in renewable energy capacity, with BloombergNEF forecasting an 80% rise in total generating capacity by 2035. This growth is expected to be driven by almost 1 terawatt of new solar and wind installations. The expansion aims to decarbonize the grid and meet the rising electricity demand from sectors such as artificial intelligence, which, along with data centers, is projected to account for 8% of US power needs by 2030. The Inflation Reduction Act is also expected to spur investment in renewable energy through a market for green tax credits, anticipated to exceed $100 billion annually by 2030.

Street Views

  • Alessio Mastrandrea, Bloomberg Intelligence (Neutral on ERG):

    "ERG’s new Ebitda guidance, between €600 million to €650 million and lower than previously forecast, may strain its ability to maintain its covenants... but the cost of debt remains competitive, and a €1.30 a-share dividend appears achievable if market conditions allow."

Management Quotes

  • Paolo Merli, CEO of ERG:

    "Our goal is to make it the third most important country for us, after Italy and France. We aim for the US to account for 15% of our asset portfolio over the next three years." "For us the ideal model to increase our presence in the US is to grow our partnership with Apex or to identify similar models to grow with. At this stage we don’t plan outright acquisitions."