NextEra Energy (NYSE:NEE) and its wholly owned subsidiary NextEra Energy Partners LP (NYSE:NEP) on June 27 announced the initial public offering (IPO) of 16,250,000 NEP shares was priced at $25.00 per unit, providing the clean energy limited partnership with some $406.3 million in equity capital to invest in solar, wind, and clean energy assets.
Based on strong investor interest, both the size of the IPO and the initial price had been raised in recent weeks. NextEra Energy Partners LP and IPO underwriters Bank of America, Goldman Sachs, and Morgan Stanley had initially set an IPO price between $19.00-$21.00 per common unit. Strong demand for the new issue prompted the IPO underwriting syndicate to boost that to $25.
Strong first day of trading
Shares surged on their first day of secondary market trading on the NYSE, closing the day at $32 – 28% above the IPO price. The underwriters have a 30-day option to purchase an additional 2,437,500 NEP common units at the IPO price less the underwriting discount. Parent NextEra Energy retains an 83% stake in NEP, excluding exercise of the underwriter's overallotment option.
According to management, approximately $150 million of the IPO's net proceeds will be used to buy 6.662 million common units of another NextEra limited partnership, NextEra Energy Operating LP, directly from the LP. Another $215.9 million-$270.7 million is to be used to purchase another 9.588 million-12.025 million common units of NEE Operating LP from NextEra Energy Equity.
Though not a structured as a yield company or "yieldco," NEP is akin to Abengoa Yield (NASDAQ:AY) and NRG Yield (NYSE:CWEN) in that its primary purpose is to invest in renewable energy assets, such as wind and solar power farms. Like ABY and NYLD, NEP aims to produce investors both current income and capital appreciation.
As NextEra explains in its SEC filing, "We are a growth-oriented limited partnership formed by NextEra Energy, to own, operate and acquire contracted clean energy projects with stable, long-term cash flows through our limited partner interest in NEE Operating LP. We will own a controlling, non-economic general partner interest and a 17.4% limited partner interest in NEE Operating LP."
Investing in wind and solar
NextEra Energy Partners LP is starting off with a portfolio of 10 wind and solar power farms in the U.S. and Canada with a total capacity of 989.6 megawatts (MW), according to the LP's SEC filing. NextEra Energy Partners booked $169 million in sales for the 12 months ended March 31, 2014.
The company sees growth potential in U.S. energy. As management explains:
We intend to take advantage of favorable trends in the North American energy industry, including the ongoing trend of clean energy projects replacing aging or uneconomic projects, demand by utilities for renewable energy to meet state RPS requirements and the improving competitiveness of clean energy relative to other fuels...We believe our cash flow profile, geographic and technological diversity, cost-efficient business model and relationship with NextEra will provide us with a significant competitive advantage and enable us to execute our growth strategy.
2014 proved to be record-setting years for both U.S. wind and solar energy. Institutional and other large investors are playing a growing role in these clean energy sectors, as performance histories are built up, costs continue to decline, and technological advances continue to be made.
U.S. utilities have a strong vested interest in continuing to play a big part of the changing U.S. energy landscape. By buying shares in a clean energy "yieldco" or limited partnership such as NextEra Energy Partners, investors can benefit from the industry and technical expertise, as well as the scale and scope of resources utilities such as NextEra bring to the market.