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NextEra's renewables, storage dealmaking undeterred by COVID-19 crisis


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NextEra's renewables, storage dealmaking undeterred by COVID-19 crisis

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NextEra Energy Resources completed the battery-backed Pinal Central solar farm in Arizona in 2018.
The developer plans to supply a fleet of large solar-plus-storage projects in the next few years.
Source: Salt River Project

As the novel coronavirus pandemic pushed the global economy into a tailspin in the first quarter, employees of NextEra Energy Resources LLC, one of the world's largest developers of renewable energy and battery storage projects, hunkered down and got deals done.

During the abrupt economic shutdown, NextEra Energy Inc.'s competitive generation subsidiary added nearly 1,600 MW of new wind, solar and energy storage capacity to its more than 10,000-MW pipeline of contracted projects across the United States.

"Most of this quarter's backlog additions were negotiated remotely while employees operated under stay-at-home orders," Jim Robo, chairman, president and CEO of the parent company, said on an April 22 earnings call with investment analysts. The 713 MW of contracted capacity at new and repowering wind farms, 420 MW of solar and 457 MW of battery storage, mostly to be coupled with existing solar arrays, are "a testament to our strong customer relationships, pipeline and development skills," Robo said.

The deep-pocketed developer, with more than $13 billion in planned expenditures in the next few years, has tax equity financing lined up for all of its 2020 projects and sees no pushback on contracted project timelines.

NextEra's demonstration of strength as a renewable energy and battery storage developer, on top of the security of its regulated utility businesses in Florida, contrasts sharply with the widespread delays, mounting job losses and calls for federal stimulus among its mostly smaller counterparts. And like other wind, solar and battery storage builders backed by major corporations — such as Lightsource BP Renewable Energy Investments Ltd. and EDF Renewable Development Inc. — NextEra's wholesale generation business could benefit where others stumble.

If that happens, "it could create project M&A opportunities for us where ... some of these smaller developers need a rescue plan because they're going to be running up against issues at the end of the year," John Ketchum, president and CEO of NextEra Energy Resources, said on the call.

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Given the growing separation among bidders competing in utility and corporate calls for power, NextEra Energy Resources feels "very bullish" about its ability to win new projects, Ketchum added.

Guggenheim Securities LLC analyst Shahriar Pourreza noted in an April 22 report that Ketchum's assertion that NextEra Energy Resources' "position of strength" could allow for project acquisitions as smaller developers struggle to access liquidity. But in addition to its size, Pourreza also pointed to the simple advantage of NextEra's track record.

"[NextEra Energy Resources'] competitive advantage at this juncture is its ability to source, finance and deliver projects like few others, which makes it a preferred choice for both customer and suppliers," Pourreza wrote.

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Bullish on batteries

Noting the recent "uptick" in still relatively low prices for natural gas, Ketchum said renewable energy and battery storage projects are beating the gas-fired competition. Compared with gas generation in the "$30 to-$40-a-MWh range," wind farms are "in the teens in most parts of the country" and solar power plants are in the mid-$20s/MWh, Ketchum added.

Two of NextEra's large-scale solar-plus-storage projects in Nevada, the Dodge Flat Solar Energy Center and the Fish Springs Ranch Solar Farm, are under contract to deliver power to NV Energy Inc. starting in 2021 with all-in levelized prices in the $30s/MWh.

"There is a significant opportunity in almost every part of the country where batteries are now more economic than gas-fired peakers even at today's natural gas prices," Ketchum said.

The company plans to invest more than $1 billion in its battery storage projects in 2021.

NextEra's utility subsidiaries, Florida Power & Light Co. and Gulf Power Co., also plan to lean more heavily on renewable energy in coming years as their parent company plans to bring Gulf Power under FPL's corporate umbrella and reduce fossil fuel generation to bring its emissions profile more in line with NextEra's flagship utility. FPL is also adding more renewable resources, including battery-backed solar photovoltaics and a community solar program, to diversify its reliance on natural gas and eliminate gas generation projects previously planned for the mid-2020s.

'A better environment for us'

NextEra's biggest test through the coronavirus pandemic and related downturn is if it can continue to sign power purchase deals. Analysts are interested in how changes in electricity demand may impact companies and their subsequent plans for new projects.

NextEra executives maintained that despite the virus-induced economic implosion, parties are still interested in buying more renewable energy.

"The fact that we buy cheaper, we build cheaper, we operate cheaper, we have the best development skills in the industry, customers more than anything right now want confidence and certainty that a project is going to get built," Ketchum said, adding that NextEra Energy Resources' access to capital makes it an attractive partner. "So actually, the current environment has created a better environment for us."

Cost sensitivity remains another tailwind for the renewables sector, especially for NextEra, Pourreza noted. The company's contract prices help lower costs for current customers and help states attract new business in a recovery scenario, the analyst said.

"Renewables are the least cost form of generation and, in many cases, are far cheaper than the alternative form of generation of continuing to operate very expensive and inefficient coal and some nuclear facilities," NextEra CFO and Executive Vice President of Finance Rebecca Kujawa said on the earnings call. "And our customers will save their customers' money when they turn those plants off and replace them with renewables."