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NextEra Energy Partners' $1.3B Buyout to Expand Renewables

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NextEra Energy Partners (NEP - Free Report) announced that it has entered into an agreement with NextEra Energy’s (NEE - Free Report) unit, NextEra Energy Resources, to acquire renewable assets situated in eight states across the nation. The 11 wind and solar projects will collectively produce nearly 1,388 megawatts (MW) and expand the green power capacity of the company beyond 5,200 MW.

This decision of acquisition is in line with the strategy of the partnership to replace the aging and uneconomic old fossil-fuel plants with new renewable generation plants.

Funding the Purchase

NextEra Energy Partners expects to acquire the entire renewable portfolio for a total consideration of $1.275 billion. The partnership intends to fund the purchase through a combination of the $573-million proceeds from the sale of its Canadian assets earlier this year and an existing credit facility capacity.

NextEra Energy Partners expects to complete the acquisition in the fourth quarter of 2018, subject to customary closing conditions and the receipt of certain regulatory approvals.

Rationale Behind the Acquisition

NextEra Energy Partners sold its Canadian portfolio of wind and solar assets to enjoy the benefits of the U.S. lower effective corporate tax rate and longer tax shield than Canada. This decision to utilize the Canadian proceeds in U.S. operations is expected to be accretive to the company’s long-term growth.

Moreover, the acquisition of high-quality contracted renewable energy assets will assure steady return for the partnership and support its expectation to increase distribution by 12-15% per year through 2023.

Rising Usage of Renewables

Despite the new U.S. Administration’s move to support the Coal industry, we notice an increasing usage of renewable energy sources for production of electricity across the United States. A report from Forbes indicated that power generation from wind and solar assets is likely to double by Dec 2020 from the present level of 115.5 gigawatt (GW).

Per an Energy Information Administration (EIA) report, total renewable energy consumption will increase 3.8% to 11.431 quadrillion Btu in 2018 from the prior-year level.

We also notice a gradual buildup of renewable plants across the United States to meet the requirement of clean electricity in the system. Ameren Corporation (AEE - Free Report) received approval from the Missouri Public Service Commission ("PSC") to add 200 Megawatt (MW) renewable generation in its portfolio, while NRG Energy Inc. (NRG - Free Report) and Cypress Creek Renewables will jointly develop a 25-MW solar project in Texas.

Zacks Rank & Price Movement

NextEra Energy Partners currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past six months, NextEra Energy Partners’ units have returned 27.9%, outperforming its industry’s rally of 7.3%.



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