Dive Brief:
- NextEra Energy has created a so-called "yieldco," a publicly traded company that is formed to own operating assets and produce a predictable cash flow and dividends for stakeholders. The new company, called NextEra Energy Partners LP, will be given a portfolio of various NextEra assets, which can then grow over time as NextEra develops more.
- Two of the benefits of yieldcos are the long term purchasing power agreements they hold and a high 5% divided to investors during low production times. Both make the yieldco a less risky investment than the utility itself.
- SunEdison also filed with the Securities and Exchange Commission to give up shares in its own yieldco, TerraForm Power.
Dive Insight:
One of the key differences between NextEra and the other utilities that have done this before is that NextEra has a high renewables portfolio, and not one filled with coal and gas plants. Wind and solar generation avoids commodity cost risks that come with gas and coal, but their installations last for unpredictable amounts of time and could degrade over time.
However, NextEra chief executive officer James Robo said that he expected the company to boost its renewables portfolio by 10% each year. The new company can essentially work as a "captive buyer" for NextEra's assets, keeping it profitable.
Mihoko Manabe, senior vice president with Moody's Investors Service, said the industry should expect to see more such moves as companies seek ways to drive innovation through financing. "NRG was the first company to do that and it's been so successful and so well-received by Wall Street that other companies are doing it. ... It's the theme of the year."
