The seven natural gas pipelines in the portfolio are all strategically located, serving power producers and municipalities in South Texas, processing plants and producers in the Eagle Ford Shale, and commercial and industrial customers in the Houston area. The NET Mexico Pipeline, the largest pipeline in the portfolio, provides a critical source of natural gas transportation for low-cost, U.S. sourced shale gas to Mexico.
NextEra Energy Partners, LP acquires, owns, and operates contracted clean energy projects. It owns interests in wind and solar projects in North America, as well as in seven contracted natural gas pipeline assets in Texas. It has a portfolio of approximately 2,926 megawatts of renewable energy projects. The company was founded in 2014 and is headquartered in Juno Beach, Florida.
(Summary) (Company) (Chart)
22 March 2017
1yr Target $35.33
Payout Ratio 70.85%
1yr Cap Gain 7.38%
1yr Tot Return 11.66%
EPS (ttm) $1.99
EPS next yr $2.14
Forward P/E 15.39
EPS next 5yr 53.34%
1yr Price Support $114.14
Market Cap $1.78 Bil
Revenues $715.00 Mil
Earnings $82.00 Mil
Profit Margin 11.46%
Quick Ratio 0.90
Current Ratio 0.90
1yr RevGR 44.44%
3yr RevGR ---
5yr RevGR ---
1yr EarnGR 308.69%
3yr EarnGR ---
5yr EarnGR ---
1yr DivGR 31.92%
3yr DivGR ---
5yr DivGR ---
NextEra Energy Partners (NEP) is a growth-oriented limited partnership formed by NextEra Energy Inc (NEE) to acquire, manage and own contracted clean energy projects with stable long-term cash flows. As of December 31, 2016, NEP owned a controlling, non-economic general partner interest and a 34.8% limited partner interest in NEP OpCo. Through NEP OpCo, NEP owns a portfolio of contracted renewable generation assets consisting of wind and solar projects, as well as seven contracted natural gas pipeline assets.
NEP expects to take advantage of trends in the North American energy industry, including the addition of clean energy projects as aging or uneconomic generation facilities are phased out, increased demand from utilities for renewable energy to meet state RPS requirements, improving competitiveness of energy generated from wind and solar projects relative to energy generated using other fuels and increased demand for natural gas transportation. NEP plans to focus on high-quality, long-lived projects operating under long-term contracts with creditworthy counterparties that are expected to produce stable long-term cash flows. NEP believes its cash flow profile, geographic, technological and resource diversity, cost-efficient business model and relationship with NEE provide NEP with a significant competitive advantage and enable NEP to execute its business strategy.
NEP was formed as a Delaware limited partnership in March 2014 as an indirect wholly owned subsidiary of NEE. On July 1, 2014, NEP completed its IPO by issuing 18,687,500 common units at a price to the public of $25 per unit.
Each of the company's renewable energy projects sells substantially all of its output and related renewable energy attributes pursuant to long-term, fixed price contracts to various counterparties. The pipelines primarily operate under long term firm transportation contracts where counterparties pay for a fixed amount of capacity that is reserved by the counterparties and also generate revenues based on the volume of natural gas transported on the pipelines. During 2016, NEP derived approximately 19%, 18% and 16% of its consolidated revenues from its contracts with Pacific Gas and Electric Company, Mex Gas Supply S.L. and the IESO, respectively. In 2016, 2015 and 2014, approximately $136 million, $136 million and $95 million, respectively, of NEP's consolidated revenues were attributable to its Canadian operations. In addition, NEP's 2016 and 2015 revenues included approximately $129 million and $18 million, respectively, of revenues attributable to its contract with a subsidiary of Pemex. At December 31, 2016, 2015 and 2014, NEP's total net long-lived assets, including construction work in progress, located in Canada amounted to approximately $881 million, $879 million and $1,075 million, respectively.
In connection with the IPO, NEP entered into a ROFO agreement with NEER and NEP OpCo that, among other things, provides NEP OpCo with a right of first offer to acquire the NEER ROFO projects, if NEER should seek to sell any of these projects. NEP believes that the NEER ROFO projects have many of the characteristics of the renewable energy projects in its current portfolio, including long-term contracts with creditworthy counterparties and recently constructed, long-lived facilities that NEP believes will generate stable cash flows. Under the ROFO agreement, however, NEER is not obligated to offer to sell any of the NEER ROFO projects. In addition, in the event that NEER elects to sell any of the NEER ROFO projects, NEER is not required to accept any offer NEP OpCo makes to acquire any NEER ROFO project and, following the completion of good faith negotiations, may choose to sell the project to third parties or not to sell the project at all. NEER is not obligated to offer NEP OpCo the NEER ROFO projects at prices or on terms that are consistent with NEP's business strategy. The NEER ROFO projects as of December 31, 2016 include contracted wind and solar projects in the U.S. and Canada with a combined capacity of approximately 1,076 MW.
Effective July 2014, NEP and certain subsidiaries of NEP entered into the MSA with an indirect wholly owned subsidiary of NEE, under which operational, management and administrative services are provided to NEP, including managing NEP’s day-to-day affairs and providing individuals to act as NEP GP’s executive officers and directors, in addition to those services that are provided under O&M agreements and ASAs between NEER subsidiaries and NEP subsidiaries. NEP OpCo pays NEE an annual management fee and makes certain payments to NEE based on the achievement by NEP OpCo of certain target quarterly distribution levels to its unitholders.
In addition, effective October 2015, subsidiaries of NEP entered into transportation agreements and a fuel management agreement with a subsidiary of NEE.
A Unique Subset of the Utility Industry
U.S. Renewable Energy Industry. Growth in renewable energy is largely attributable to the increasing cost competitiveness of renewable energy driven primarily by government incentives, RPS, improving technology and declining installation costs and the impact of increasingly stringent environmental rules and regulations on fossil-fired generation.
U.S. federal, state and local governments have established various incentives to support the development of renewable energy. These incentives make the development of renewable energy projects more competitive by providing accelerated depreciation, tax credits or grants for a portion of the development costs, decreasing the costs associated with developing such projects or creating demand for renewable energy assets through RPS programs. In addition, RPS provide incentives to utilities to contract for energy generated from renewable energy providers.
Renewable energy technology has improved and installation costs have declined meaningfully in recent years. Wind technology is improving as a result of taller towers, longer blades and more efficient energy conversion equipment, which allow wind projects to more efficiently capture wind resource and produce more energy. Solar technology is also improving as solar cell efficiencies improve and solar equipment costs decline.
Fossil-fired plants emit greenhouse gases (GHG) and other pollutants. A number of U.S. Environmental Protection Agency (EPA) rules have been proposed that are expected to impact many coal-fired plants in the U.S. While there is some uncertainty as to the timing and requirements that will ultimately be imposed by these proposed rules, NEP expects that the owners of some of the smaller, older or less efficient coal-fired plants will choose to decommission these facilities rather than make the significant investments that will be necessary to comply with environmental rules and regulations. In addition, NEP expects the current relatively low natural gas prices will affect the decision whether to make such investments.
Canadian Renewable Energy Industry. Canada is a world leader in the production and use of clean energy as a percentage of its total energy needs. Capacity additions are expected to be required throughout Canada in order to replace aging projects and meet growing demand. While a majority of Canada’s electricity is generated by hydro energy plants, non-hydro renewable energy is providing an increasing portion of Canada’s energy.
The Canadian energy industry is also benefiting from the increased competitiveness of renewable energy, due in part to improving technology and declining installation costs. Furthermore, government targets and incentives at the provincial level continue to drive the growth of renewable energy in Canada. Ontario, in particular, has been a leader in supporting the development of renewable energy in Canada.
U.S. Natural Gas Pipeline Transportation Industry. The increase in natural gas production in the U.S. has led to opportunities to construct new gas pipelines to transport natural gas from areas of strong production to areas of strong natural gas demand. Over the next several years, NEP expects electricity generators to continue to demand higher volumes of natural gas due to prices being near historic lows and the emergence of GHG emissions standards. NEP expects these factors to continue to support a growing natural gas transportation industry.
My Path Forward
While NextEra Energy Partners came public only a couple of years ago and there is limited data available, the company was originally a subsidiary of NextEra Energy Inc and know as NextEra Energy Resources before being spun off as a separate company. Therefore I expect it to have many of the same characteristics as it's famous parent and should be an excellent investment.
I also like the fact that it's in this special category of renewable energy. I believe it will become the energy of choice for a larger portion of the world's energy needs going forward. I realize that initially there's a lot of government support for the industry though tax incentives, but as the cost per kilowatt continues to fall, this could be an extremely valuable industry to invest in.
I've recently started a small position in this company. I looked at the numbers and was attracted to the company's dividend and analysts 5 year estimated earnings growth rate. I will continue to add to that position through dividend reinvestment and eventually, when I've accumulated over 100 shares, the sale of covered calls. I expect this to be a long term investment that will only increase over time.