NEP has acquired the portfolio of seven operational, fully contracted facilities in California, New Mexico, North Dakota, Georgia, and Alabama from its affiliate NextEra Energy Resources (NEER). The consideration comprises $566mn in cash and $307mn in existing project debt, interest rate swaps, and non-controlling membership interests. NEP will fund the acquisition via a $2.5bn credit facility. The assets have a CAFD-weighted average remaining contract life of ~16 years, with output sold under long-term power purchase agreements (PPAs) to investment-grade investor-owned and public utilities. The portfolio is expected to contribute $110-130mn in adjusted EBITDA on a five-year average annual run-rate basis, beginning December 31st, 2023.
As per Enerdatics data, the deal marks NEP’s 9th major renewable energy acquisition from NEER since 2017 and brings the total value of the deals to more than $10bn. Our research team has identified that the transactions are representative of a broader capital and risk strategy, which balances the market exposure and capital intensity of renewable energy development ad ownership between both companies. Under the strategy, NEP is focused on owning fully contracted assets with stable cashflows, while NEER functions as a development arm with a 30-year track record in project origination and development. NEP has stated that acquisitions from NEER allow the latter to recycle capital, which it can then redeploy in greenfield renewable development and storage projects, as well as transmission.
Additionally, the symbiotic relationship between the two companies maintains a low cost of capital for NEP’s acquisitions. Meanwhile, NEER’s portfolio continues to be a key growth lever for NEP with a 19 GW backlog of renewable energy and storage projects that are currently in development. Further, NEER, through its subsidiaries, provides operations & maintenance (O&M), administrative and management services to the majority of NEP’s assets.
Going forward, Enerdatics expects NEP to continue announcing $1-2bn/year of acquisitions from NEER, consistent with what we have been observing since 2017. By leveraging this strategy NEP can continue to grow its portfolio in a cost-effective, low-risk manner, amid increased competition in the unregulated renewables market post the passage of the Inflation Reduction Act (IRA) and a higher cost of capital due to elevated interest rates.
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.
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