Talen offloads three power plants for $1.5bn

The power producer is set to divest more than 1GW of assets in Pennsylvania through two separate transactions with Brookfield and TransCanada.

Talen Energy, a spin-off of US utility PPL Corporation, is selling off two hydroelectric plants and one gas-fired station for just over $1.5 billion in order to meet regulatory requirements and free up capital to pay down long-term debt.

Located in Pennsylvania, the assets are to be sold through two separate transactions to a subsidiary of Alberta-based TransCanada Corp, and to Bermuda-based, publicly-traded pure-play renewable power platform Brookfield Renewable Energy Partners. 

The largest of the three assets, the 778-megawatt (MW) natural gas-fired, combined-cycle Ironwood plant located in Lebanon, will be acquired by TransCanada for $654 million. The plant was bought by PPL in 2011 from AES Corporation for an undisclosed amount, though AES did disclose netting a total of $230 million from the sale of both the Ironwood plant to PPL and the combined-cycle natural gas AES Red Oak plant to Energy Capital Partners

Talen reports that the acquisition of the plant is expected to generate between $90 million and $110 million in annual earnings before interest, taxes, depreciation, and debt repayments for TransCanada, who in a related statement, said $42 million in debt will be assumed and then repaid within 45 days of closing out of funds placed in escrow by the seller.

Brookfield meanwhile is set to buy Holtwood, a hydroelectric portfolio company which includes the 252MW Holtwood station on the Susquehanna River and the 40 MW Wallenpaupack station on Lake Wallenpaupack in the Poconos Mountains. The firm reckons that the transaction, valued at $860 million, will create a strong synergy between its new acquisitions and the 417MW Safe Harbor facility owned by the company that is located eight miles upstream from Holtwood.

The hydro plants benefit from long-term FERC operating licenses through 2030 (Holtwood) and 2045 (Wallenpaupack) and are expected to generate approximately 1.1-gigawatt/hours (Gw/h) of electricity annually, Brookfield reports.

Talen Energy was born earlier this year out of PPL Corporation's power generation business. The sale of the two plants to Brookfield and of the Ironwood plant to TransCanada Corp for $654 million are part of the regulatory requirements that allowed for its creation. 

Talen expects to use proceeds from the sale to pay down its long-term debt, which rung in at $3.18 billion in the middle of 2015. In July, the company announced the sale of a  65MW portfolio of 25 renewable energy projects across four US states to California-based Energy Power Partners

Both the TransCanada and the Brookfield transactions are expected to close in the early months of 2016.