Renewables get vote of financial confidence in NextEra spinoff plans

Source: Kristi E. Swartz, E&E reporter • Posted: Monday, May 5, 2014

NextEra Energy Inc.’s decision to form a separate company for its renewable portfolio is a signal that wind and solar projects have risen to the level of being a strong, steady, long-term investment, analysts say.

The utility has long been the nation’s No. 1 developer of wind and solar generation, and its move to form a yield company or “yieldco” would allow it to quickly raise capital to support additional growth in the renewable energy industry, according to analysts interviewed by EnergyWire. Investors would have a new way to get better returns off energy and renewable projects.”Investors want yield, and because they [NextEra] continue to up the ante on additional renewables generation, they need to raise more capital to build more wind and solar,” said David Parker, a Tampa, Fla.-based utilities analyst with Robert W. Baird & Co. “It shows the renewable industry continues to be positively viewed,” he said.

Investors once viewed wind projects as iffy investments when NextEra got into the renewable energy business nearly two decades ago, Parker said. Solar projects also were viewed as too expensive until falling technology costs recently made them more economical.

The South Florida-based company continues to have wind and solar projects in development through its subsidiary, NextEra Energy Resources.

“You’re starting to see developers come to them not just because of the production tax credit but on the economics of the wind and solar developments,” said Andrew Bischof, a utilities analyst who follows NextEra for Morningstar Inc.

Yieldcos are rising in popularity among energy companies, especially ones in the renewable industry. Companies take current power plants and projects, bundle them into new subsidiaries and sell their shares.

Revenues come from long-term power purchase agreements, which is common for wind and solar projects. Cash is paid out in regular dividends.

“This is a way they are able to monetize those assets at a higher rate,” Parker said. “People will pay more for those assets and create value for NextEra’s shareholders.”

NextEra is following in the steps of NRG Energy Inc., which formed a yieldco last year. NRG Yield owns natural gas plants, seven utility-scale solar projects, smaller distributed solar assets and a wind farm.

It recently closed on a $450 million secured revolving credit facility.

“NRG has this, and it’s been pretty well-received,” said Paul Patterson, a utilities analyst with Glenrock Associates LLC. “People are thirsty for yield, and part of it is because there’s incredibly low interest rates.”

‘Heavily renewable’ mix

While NextEra executives remained quiet this week on details of its proposed yieldco, the company has been talking about forming one since last fall.

Moray Dewhurst, NextEra’s chief financial officer, told investors during previous earnings calls that the company has estimated between 1,500 to 2,000 megawatts of operating assets that “would fit the desired format.”

“It would be a mix of projects, heavily renewable, potentially some of our contracted fossil assets as well and the renewables being a mix of wind and solar,” regardless of whether those projects have the federal production tax credit, Dewhurst said last November.

An additional 1,200 MW that is being developed could also fit, he said. That will be from renewable energy projects “because that’s where our development efforts have been concentrated for some time,” he said.

Jim Robo, NextEra’s CEO, told analysts at the start of the company’s first-quarter earnings conference call Wednesday that the company had privately filed the necessary paperwork with the Securities and Exchange Commission for the yieldco.

Robo declined to give specifics as to what projects or how many megawatts of energy would be included. He said the SEC is reviewing the company’s request. Market conditions also will be a factor in whether NextEra proceeds, he said.

If that happens, the confidential draft registration statement and the final version will be made public.