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NextEra acquires a stake in ~1.8 GW of long-term contracted renewable energy assets in the US for $1.69bn

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Mohit Kaul's picture
Founder Enerdatics

Building Enerdatics. Leadership experience in a high growth SaaS company and secured a successful exit. A natural leader who cares about creating value for all stakeholders. Extensive experience...

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  • Nov 21, 2022
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NextEra Energy Partners (NEP) will acquire the operating and under-construction assets for $805mn, plus the assumption of its share of the portfolio's estimated $1.5bn in tax equity financing, from parent company NextEra Energy Resources (NER). The transaction includes the acquisition of a 49% stake in Emerald Breeze, a holding company with 1.5 GW of solar, wind, and storage capacity in Texas, Oklahoma, New York, and Nevada. Additionally, NEP will acquire a 100% stake in 347 MW of operating wind projects in Oklahoma, Iowa, and Nebraska. The assets are contracted to credit-worthy off-takers with Moody’s and S&P ratings of A+ and A2, with cash available for distribution (CAFD) weighted remaining contract life of ~15 years. 

In conjunction with the acquisition, NEP has entered into a convertible equity portfolio financing (CEPF) agreement with Ontario Teachers' Pension Plan (OTPP) for ~$805mn. Under the terms, OTPP will initially fund ~$645mn for NEP to finance the acquisition, with the remaining $160mn to be disbursed by the end of Q3 2023 upon the achievement of the commercial operations at certain large-scale solar and wind projects. OTPP is expected to earn an effective annual coupon of ~2.8% on the outstanding investment over its initial 10-year period. Further, the financing provides NEP the flexibility to buy out OTPP’s equity interest at a fixed ~7% pre-tax annual return between the 5-year and 10-year anniversaries of the agreement.

According to Moody’s credit report on NEP, released in Ju’22, NEP’s portfolio buildout since 2018 has been financed largely by CEPF structures; other major sources of capital include convertible corporate debt and project-level debt. NEP's use of CEPF structures, such as those previously executed with BlackRock and KKR, gives NEP access to low-cost capital as a means to finance portfolio asset acquisitions. NEP believes that the CEPF structures provide the company with greater financial flexibility, and allow it to leverage private capital demand for stable, long-term contracted assets. Similar to the arrangement with OTPP,  the first CEPF agreement (with BlackRock) provided NEP with the option to buy out 100% of the outstanding minority ownership interest in the portfolio of wind and solar assets. NextEra exercised this option in Nov’21, with Blackrock electing to receive 30% of the buyout in cash, which NEP funded primarily with debt. The remaining 70% of the buyout was funded with new equity, which supported NEP's credit quality related to this financially complex and relatively new financing structure. 

The Enerdatics research team has analyzed NEP’s portfolio buildout activity in the US since 2019 and summarized its findings on the attached chart.
 

 The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.

Discussions
Aditya  Dutta's picture
Aditya Dutta on Nov 21, 2022

The assets that were traded in the deals, Eight Point Wind and Yellow Pine Solar, have secured the environmental permit and are now in the later stages of development. The same permit is being sought by NextEra for Appaloosa Run Wind in 2022. The project will be repurchased by the seller if it is not operational by Q3 of 2022. Obtaining the environmental permit for Appaloosa Run wind will speed up the entire construction process.

Kshitij NR's picture
Kshitij NR on Nov 21, 2022

NEP entered into its first CEPF agreement, with BlackRock, in September 2018. Under the deal, the company secured $750mn in cash in exchange for an equity interest in an ~1,388 MW portfolio. The agreement provided NEP with the option to buy out BlackRock's equity interest for a fixed payment in late 2021, resulting in a pre-tax return to the fund of 7.75%.

Since this inaugural CEPF, NEP has announced five additional CEPF structures. The majority of the other CEPF structures allow NEP, at its sole election, to finance the buyout entirely with new equity, if the company choses to exercise the option, which is more credit supportive because of the absence of additional leverage.

Sanskruti  Rajore's picture
Sanskruti Rajore on Nov 22, 2022

NEP continues to add to its renewable portfolio by acquiring assets using debt and equity. It especially benefits from its partnership with NextEra Energy, Inc. owing to access to NER assets available for sale, with a portfolio of operating assets and a backlog of ~47GW.  NEP's combined Debt/EBITDA for the 12 months ending 31 March 2022 climbed to 5.9x from around 3.5x in 2020, as they increased leverage substantially during 2021 to fund portfolio additions to enable them to keep growing their cash flow generation and unit distribution.

Mohit Kaul's picture
Thank Mohit for the Post!
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