OTPP Acquires Big Stake in NextEra's Renewable Assets
Ontario Teachers’ Pension Plan will put more than US$1-billion into a U.S. renewable-energy company to acquire part ownership of a collection of wind and solar assets.
Teachers said Tuesday it will pay US$849-million for a 50-per-cent share of 13 generation plants and storage facilities in nine U.S. states currently owned by NextEra Energy Resources LLC. The assets generate or store a total of 2,520 megawatts of energy, with about one-third of the capacity coming from two wind farms in Texas.
Florida-based NextEra is selling the other half of the assets to NextEra Energy LP, an affiliated, publicly traded partnership. In a complicated second step, Teachers said it will also provide at least one-quarter of a US$824-million financing commitment made in October by Apollo Global Management Inc. that is helping the publicly traded partnership make its purchase. That will add more than US$200-million to Teachers’ financial commitment.
NextEra Energy Resources will operate the properties and collect management fee income from the new owners. The company says it is the world’s largest generator of wind and solar energy and a world leader in battery storage.
Chris Ireland, managing director of greenfield and renewable investments at Teachers, said the investment “marks the beginning of what we expect will be a long-term partnership with NextEra Energy.”
Investors can expect similar deals from Teachers and other big Canadian pension plans as they look to green up their portfolios, especially if they’ve made a pledge to become “net zero” – or have their carbon emissions from companies they invest in completely offset by investments in renewable energy or other means – by 2050.
Teachers is one of several major Canadian pension plans to have made a commitment to be net zero by 2050, along with Caisse de dépôt et placement du Québec, Ontario Municipal Employees Retirement System and Investment Management Corporation of Ontario. Teachers, however, says it has the most aggressive interim targets in the Canadian industry, planning to reduce portfolio carbon emissions intensity by 45 per cent by 2025 and two-thirds by 2030, compared with a 2019 baseline.
Shift Action for Pension Wealth and Planet Health, an advocacy organization that pushes pensions on climate matters, said in September that Teachers’ interim targets represented “the strongest climate commitment we’ve seen yet from a Canadian pension fund.”
But Shift says pension funds must not only invest in solutions to the climate crisis, but also eliminate exposure to fossil fuels. “A two-thirds reduction in portfolio emissions intensity by 2030 will require significant restrictions on high-carbon investments in oil, gas and coal. A further tightening of these commitments, and a focus on absolute emissions reductions, is required.”
Emon Reiser of the South Florida Business journal also reports NextEra subsidiary agrees to sell 50% ownership of renewable energy assets in $866M deal:
A subsidiary of NextEra Energy Resources LLC agreed to sell what it called a "non-controlling interest" in a massive portfolio of clean energy-generating sites as oil prices continued to climb.
The LLC's Juno Beach-based parent company, NextEra Energy (NYSE: NEE), on Tuesday said the deal to sell a 50% stake in its 2,520-megawatt portfolio to the Ontario Teachers' Pension Plan Board was valued at $866 million. The Toronto-based fund is one of the world's largest pension plans, with CA$277.7 billion in assets.
The other half of the portfolio will be transferred from the NextEra Energy Resources subsidiary to NextEra Energy Partners LP (NYSE: NEP) per an Oct. 21 agreement.
The transaction, expected to close in early 2022, reverses a trend of acquisitions in the renewable energy space by NextEra and its subsidiaries, which most recently include a $824 million agreement to buy a 50% stake in wind and solar energy sites nationwide and the close of a $733 million deal to buy four wind farms.
The just-announced sale continues NextEra's long-term play in the renewable energies sector as demand rises. NextEra Energy Chairman and CEO Jim Robo said the sale will "recycle nearly $3.4 billion in total capital" for the company.
The portfolio that NextEra Energy Energy Partners LP and the Ontario Teachers' Pension Plan Board will equally own at the close of the deal comprises:
- White Mesa Wind, an approximately 501-MW wind generation facility in Texas
- Irish Creek Wind, an approximately 301-MW wind generation facility in Kansas
- Hubbard Wind, an approximately 300-MW wind generation facility in Texas
- Cool Springs Solar, an approximately 213-MW solar generation and 40-MW solar storage facility in Georgia
- Little Blue Wind, an approximately 251-MW wind generation facility in Nebraska
- Dodge Flat Solar, an approximately 200-MW solar generation and 50-MW solar storage facility in Nevada
- Elora Solar, an approximately 150-MW solar generation facility in Tennessee
- Quitman II Solar, an approximately 150-MW solar generation facility in Georgia
- Fish Springs Ranch Solar, an approximately 100-MW solar generation and 25-MW solar storage facility in Nevada
- Minco Wind Energy III, an approximately 107-MW wind generation facility in Oklahoma
- Ensign Wind Energy, an approximately 99-MW wind generation facility in Kansas
- Borderlands Wind, an approximately 99-MW wind generation facility in New Mexico
- Quinebaug Solar, an approximately 49-MW solar generation facility in Connecticut
NextEra Energy Resources will receive an annual fee, valued at $16 million in the first year, that is expected to increase over time during the operating contract of the portfolio, which has about 19 years remaining.
The sale proceeds are expected to be redeployed into new wind, solar and battery storage growth opportunities, the company said.
NextEra Energy Resources bills itself as the world's largest generator of renewable energy from wind and solar power. Its parent company owns Florida Power & Light Co. Juno Beach-based FPL has over 9,000 employees.
Ontario Teachers’put out a press release on this deal stating it will acquire a 50% interest in a portfolio of high-quality renewable energy assets from NextEra Energy:
Ontario Teachers’ Pension Plan Board (Ontario Teachers’) today announced that it has reached an agreement with NextEra Energy Resources, LLC, a subsidiary of NextEra Energy, Inc. (NYSE: NEE), to acquire a 50% interest in a portfolio of high-quality wind, solar and energy storage assets across the U.S.
Ontario Teachers’ has agreed to acquire a 50% direct interest in an approximately 2,520-megawatts portfolio of 13 high-quality, long-term contracted renewable assets, which are geographically diversified across U.S. power markets, for a total consideration of approximately US$849 million. Ontario Teachers’ has also entered into a commitment to purchase at least a 25% interest in the US$824 million convertible equity portfolio financing announced by NextEra Energy in October 2021.
NextEra Energy manages and owns contracted clean energy projects with stable, long-term cash flows and builds energy infrastructure that drives economic growth and supports communities. Through its competitive clean energy business, NextEra Energy Resources, NextEra Energy is the world's largest generator of wind and solar energy and a world leader in battery storage.
“We are excited to make this significant investment and to grow our global portfolio of high-quality renewable energy assets,” said Chris Ireland, Managing Director, Greenfield and Renewables at Ontario Teachers’. “NextEra Energy is one of the world’s leading renewable energy companies and they share our focus on shaping a better future through the development of sustainable energy. This investment marks the beginning of what we expect will be a long-term partnership with NextEra Energy.”
The investment is being led by the Greenfield and Renewables team, which is part of the Infrastructure & Natural Resources department at Ontario Teachers’. Current investments supporting renewables development include Cubico Sustainable Investments, a global renewable energy company, Anbaric Development Partners, a builder of transmission solutions for renewables in the US northeast, and Equis Developments, a renewable developer in Asia-Pacific.
Earlier this year, Ontario Teachers’ committed to having net-zero greenhouse gas emissions across its portfolio by 2050. In September this year, it set industry-leading interim reduction targets: to reduce portfolio carbon emissions intensity by 45% by 2025 and two-thirds (67%) by 2030, compared to a 2019 baseline.
Ontario Teachers’ expects to close the transaction later this year or in early 2022, subject to customary closing conditions and receipt of certain regulatory approvals.
Ontario Teachers’ financial advisor was TD Securities and legal advisor was Kirkland & Ellis LLP.
About Ontario Teachers’
Ontario Teachers' Pension Plan Board (Ontario Teachers') is the administrator of Canada's largest single-profession pension plan, with C$227.7 billion in net assets (all figures at June 30, 2021 unless noted). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.6% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region offices are located in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded as at January 1, 2021, invests and administers the pensions of the province of Ontario's 331,000 active and retired teachers. For more information, visit otpp.com.
NextEra Energy, Inc.
NextEra Energy, Inc. (NYSE: NEE) is a leading clean energy company headquartered in Juno Beach, Florida. NextEra Energy owns Florida Power & Light Company, which is the largest vertically integrated rate-regulated electric utility in the United States as measured by retail electricity produced and sold, and serves more than 5.6 million customer accounts, supporting more than 11 million residents across Florida with clean, reliable and affordable electricity. NextEra Energy also owns a competitive clean energy business, NextEra Energy Resources, LLC, which, together with its affiliated entities, is the world's largest generator of renewable energy from the wind and sun and a world leader in battery storage. Through its subsidiaries, NextEra Energy generates clean, emissions-free electricity from seven commercial nuclear power units in Florida, New Hampshire and Wisconsin. A Fortune 200 company, NextEra Energy has been recognized often by third parties for its efforts in sustainability, corporate responsibility, ethics and compliance, and diversity. NextEra Energy is ranked No. 1 in the electric and gas utilities industry on Fortune's 2021 list of "World's Most Admired Companies," recognized on Fortune’s 2021 list of companies that “Change the World” and received the S&P Global Platts 2020 Energy Transition Award for leadership in environmental, social and governance. For more information about NextEra Energy companies, visit these websites: www.NextEraEnergy.com.com, www.FPL.com, www.GulfPower.com, www.NextEraEnergyResources.com.
This is a sizable deal worth covering.
As stated above, NextEra Energy Resources will operate the properties and collect management fee income from OTPP. The company says it is the world’s largest generator of wind and solar energy and a world leader in battery storage.
In my last comment on IMCO's grand designs on battery storage, I discussed the importance of battery storage as well as the economics of wind and solar farms.
OTPP just partnered up with a world leader in renewable energy and energy storage.
NextEra Energy (NEE) and NextEra Energy Partners (NEP) where these assets will be transferred are both large publicly traded corporations that are very well managed. This is reflected in their respective stock price which has done very well over the last five years:
Why is this important? Because I don't think Ontario Teachers' could have partnered up with a better company to expand their renewables business, NextEra truly is a world leader in the space.
Paying them a small annual management fee to operate this business is well worth it because Teachers' and their members will collect half the revenues and profits.
All this to say hats off to Chris Ireland, Managing Director, Greenfield and Renewables at Ontario Teachers’ and whoever else worked on this deal, this is an excellent deal for Teachers' and its members.
With competition fierce for renewable energy deals, to have an operating partner of this caliber by your side is very reassuring.
Moreover, Ontario Teachers’ is committed to having net-zero greenhouse gas emissions across its portfolio by 2050 and in September, it set industry-leading interim reduction targets: to reduce portfolio carbon emissions intensity by 45% by 2025 and two-thirds (67%) by 2030, compared to a 2019 baseline.
Quality deals of this scale not only bring it closer to this target, they allow Teachers' to remain true to their mission and find the best risk-adjusted returns across public and private markets all over the world.
And by the way, Teachers' isn't the only large Canadian pension striking deals with NextEra.
Recall, two years ago, I covered CPP Investments' Green team and Bruce Hogg, head of power and renewables there mentioned this company:
We completed a transaction in Brazil at the very beginning of the year [Votorantim Energia joint venture, C$272 million]. We then picked up on ongoing conversations with NextEra Energy Inc. and bought a portfolio of operating assets in Canada and then, very quickly thereafter, announced the transaction with Enbridge Inc. to buy over C$2 billion of equity in operating and in-construction assets across North America and Europe. So, we literally hit the ground running and never stopped running.
[...] The portfolio we bought from NextEra in Canada was a situation where we were able to provide significant capital in a very tight time period. It is a competitive market, and people are always looking at alternative capital sources. That said, we generally find that in most of the transactions that we look at, by the end, it is typically just us or maybe one other investor.
That's how I now NextEra is a world leader in renewables, you have two of the best Canadian pensions structuring deals with it.
By the way, two years ago, NextEra predicted 50% renewable energy in the US by 2030 which means huge growth is coming over the next eight years.
All this to say, this will indeed prove to be an excellent long-term partnership between NextEra Energy Partners and Ontario Teachers'.
And let this be a lesson to all other pensions looking to strike similar deals, if you want to be a world leader in renewable energy, you need to find a world-class operating partner who is looking for more than just capital you bring to the table.
There is a reason why NextEra partnered up with Teachers' on this deal, and it's not just about deep pockets, it's about OTPP's brand, expertise, vast network and global presence.
Below, find out why NextEra is a world leader in renewable energy and energy storage. Ontario's teachers now proudly own a half these assets through their well managed pension plan.