NextEra renewables sale to CPP speaks volumes

Parker Gallant Energy Perspectives

April 5, 2018

Canada Pension Plan’s investment in part of a wind-solar power portfolio seems to ignore a lot of negatives, including the energy poverty rising in Ontario due to electricity bills

Canada Pension Plan contribution rates are rising again, as reported by the Financial Post December 14, 2017: “the contribution rate (i.e., the CPP tax) has increased from 3.6 per cent when the CPP was launched in 1966 to its current rate of 9.9 per cent. It will increase further to 11.9 per cent beginning in 2019.”

The Canada Pension Plan Investment Board (CPPIB) is an active investor, looking for good rates of return without taking “excessive risk.” So they either searched for assets that pay guaranteed above market rates, or were approached by U.S. Power giant NextEra who sold them their Ontario portfolio of 396 MW of wind and solar contracts. CPPIB paid $1.871 million per MW for a total of $741 million CAD and also assumed the debt (US$689 million) attached to the NextEra portfolio. The press release associated with the acquisition had this quote from Bruce Hogg, Managing Director, Head of Power and Renewables: “As power demand grows worldwide and with a focus on accelerating the energy transition, we will continue to seek opportunities to expand our power and renewables portfolio globally.”

Perhaps Mr. Hogg was unaware “power demand” in Ontario has actually fallen from 153.4 TWh in 2004 to 132.1 TWh in 2017 despite an increase in our population of approximately 450,000. He may also be unaware industrial wind turbines create health problems, cause property values to drop and kill birds and bats including those on the endangered species list.

What the CPP acquisition means is Ontario ratepayers will be indirectly contributing additional funds to the CPP without the benefit of reducing either their annual tax burden or increasing their future pension benefits. A “win, win” for CPP and a “lose, lose” for Ontario’s taxpayers. The sole redeeming feature is that the money will stay in Canada instead of flowing elsewhere.

Ironically, the CPP by acquiring and holding those assets will also be showing their support for energy poverty. The Ontario Energy Board (OEB) in their December 2014 report noted: “Using LIM* as a measuring tool, and relying on Statistics Canada household data, Ontario has 713,300 low-income households.” At that point in time the 713,300 households represented almost 16% of residential ratepayers in the province and one should suspect that number has increased over the past three years.

So, one should also wonder why NextEra, headquartered in Florida, sold those assets and their above market returns? The press related to their announcement of the sale speaks volumes: “As discussed during our earnings call in January, we expect the sale of the Canadian portfolio to enable us to recycle capital back into U.S. assets, which benefit from a longer federal income tax shield and a lower effective corporate tax rate, allowing NextEra Energy Partners to retain more CAFD** in the future for every $1 invested.”

No doubt the NextEra sale may be a sign of the future as the Canadian economy has shown serious signs of slowing as taxes rise and foreign investment falls. The bulk of the investment in the renewable energy sector in Ontario came from offshore companies who rushed to take advantage of the above market rates and guaranteed prices offered under the Feed-in-Tariff (FIT) program available under the Green Energy Act.

Those investors will look to cash in on the sale of those assets, so we should expect to see more public and private Canadian pension funds stepping up to purchase them.

Parker Gallant

*Statistics Canada’s Low-Income Measure is simply defined as half of the median adjusted economic family income.

**Cash Available for Distribution

READ Article

pggy bank

An argument against wind farms

An eleven-year-old boy spoke to the Chautauqua County Legislature:

“I’ve spent my 11 years on Earth in this town. My parents have worked so hard for the place we have. They’ve made the land that I live on home. And these wind turbines, they’re destroying it. My grandmother was born and lived briefly not even a half mile from where I live right now. I just can’t stand the thought of being forced from my home. And my town – by these windmills. I went out not two mornings ago, and I can’t even find peace and quiet outside without the sound of back-up alarms, bulldozers and cranes. Up on Straight Road there’s a giant crane already and they’re setting one up on Center Road. I don’t want to be forced from my home and I’m sure none of you would want to be forced from yours. Thank you for your time.”

READ ARTICLE

father & child.jpg

Next Era selling Ontario Wind & Solar

Beyond words…..

DSCN1859
Wind Turbines Summerhaven project- Haldimand County

NextEra selling Ontario wind & solar assets

NextEra Energy Partners, LP announced that it has entered into a definitive agreement with Canada Pension Plan Investment Board (CPPIB) for the sale of its portfolio of wind and solar generation assets in Ontario, Canada, for a total consideration of about $582.3 million. This includes the net present value of the O&M origination fee, subject to customary working capital and other adjustments, plus the assumption by the purchaser of approximately $689 million USD in existing debt.

Wind turbines
The transaction includes the sale of six fully contracted wind and solar assets with an average contract life of about 16 years.

“We are pleased to reach this agreement with CPPIB for the sale of our Canadian portfolio, which we expect will be accretive to NextEra Energy Partners’ long-term growth,” said Jim Robo, chairman and chief executive officer. “The sale of these assets, at a very attractive 10-year average CAFD yield of 6.6%, including the present value of the O&M origination fee, highlights the underlying strength of the partnership’s renewable portfolio.”

An affiliate of NextEra Energy Resources will continue to operate all of the facilities included in the transaction under a 10-year services agreement with CPPIB.

As discussed during our earnings call in January, we expect the sale of the Canadian portfolio to enable us to recycle capital back into U.S. assets, which benefit from a longer federal income tax shield and a lower effective corporate tax rate, allowing NextEra Energy Partners to retain more CAFD in the future for every $1 invested. We expect to accretively redeploy the proceeds from this transaction to acquire higher-yielding U.S. assets from either third parties or NextEra Energy Resources,” added Robo.

The transaction includes the sale of six fully contracted wind and solar assets, with an average contract life of approximately 16 years and 10-year average CAFD of $38.4 million. Located in Ontario, the portfolio has a combined total generating capacity of approximately 396 MW and consists of:
◾Bluewater, a 59.9-MW wind generating facility;
◾Conestogo, a 22.9-MW wind generating facility;
◾Jericho, a 149-MW wind generating facility;
◾Summerhaven, a 124.4-MW wind generating facility;
◾Moore, a 20-MW solar energy generating facility; and
◾Sombra, a 20-MW solar energy generating facility.

NextEra Energy Partners expects the sale to close during the second quarter of 2018. The transaction is subject to receipt of regulatory approvals and satisfaction of customary closing conditions.

NextEra Energy Partners continues to expect a Dec. 31, 2018, run rate for adjusted EBITDA of $1.00 billion to $1.15 billionand CAFD of $360 million to $400 million, reflecting calendar year 2019 expectations for the forecasted portfolio at year-end 2018.

Citi and CIBC Capital Markets are serving as financial advisors to NextEra Energy, and McCarthy Tétrault LLP and Gowling WLG (Canada) LLP are legal counsel.

READ ARTICLE