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NextEra Energy Partners LP: Plenty of Steak, But Priced for Sizzle

By Roger S. Conrad on Jul. 27, 2014

And NextEra Energy Partners LP’s (NYSE: NEP) initial public offering (IPO) creates a virtuous circle whereby NextEra Energy sells operating renewable-energy projects to the master limited partnership (MLP) and plows the proceeds into building additional capacity.

NextEra Energy Partners isn’t the first renewable-energy MLP. That honor falls to Model and International Portfolio holding Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP), a pure play on wind and hydroelectric power.

Nor is NextEra Energy the first US electric utility to monetize assets and create a vehicle for recycling capital by spinning off ownership interests in power plants that operate under long-term contracts. NRG Energy (NYSE: NRG) accomplished this feat with the IPO of NRG Yield (NYSE: NYLD) in July 2013.

However, NextEra Energy Partners is the first pure play on wind and solar power to be structured as a MLP. And with the stock up 37 percent since its June 26 IPO, the issue has proved popular with investors.

Sponsor and general partner NextEra Energy netted about $443 million from this transaction and, with an 83 percent equity interest in NextEra Energy Partners, has benefited from the newly listed stock’s meteoric rise.

NextEra Energy Partners’ initial asset base includes about 990 MW of wind and solar power, all of which operates under long-term agreements with regulated utilities or governmental authorities. These counterparties have an average credit rating of A2, limiting default risk.

The first contract expiration won’t occur until 2029. And this 22.5 MW tranche of a 174.3 MW series of deals with Xcel Energy (NYSE: XEL) covers an installation in Colorado, a state with lofty clean-energy goals; the likelihood of renewal appears high, though a lot can change in 15 years.

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