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Pattern Energy unveils new renewables financing vehicle

Pattern Energy Group Inc. rolled out a new limited partnership financing vehicle dubbed Pattern Energy Group 2 LP that it hopes will help expand its access to capital to fuel its development pipeline.

The renewable yieldco on Dec. 14 characterized the Pattern Energy Group 2 LP vehicle as one of two entities nested in Pattern Development entity that will own late-stage development projects, including the Grady Wind Energy Center project in California.

The announcement is consistent with guidance offered by Pattern Energy management in its most recent earnings call, where such a restructuring was thought to avail to company to bigger projects.

Under the new structure, Pattern Energy, at the corporate level, will retain its interest in its development arm, alongside its partners that include Riverstone Holdings LLC, but also opens a path to attracting both third-party development capital, a possible move to ease concerns from private equity investors on the risk-return dynamic of financing development-stage renewable energy projects.

"The creation of PEG LP 2.0 will enable the funds that own Pattern Development to raise significant amounts of additional long-term development funding while preserving Pattern Energy's rights. In addition, PEG LP 2.0 is structured to allow Pattern Energy to potentially invest in PEG LP 2.0 in the future," Pattern Energy CEO Mike Garland said.

Under the arrangement, Pattern Energy will maintain right of first offer on projects owned and developed by the combined Pattern Development entity, which have been identified as ROFO eligible projects.

Pattern Energy made clear that it does not intend to participate in the development aspect of the business, but did suggest that the new structure could allow Pattern Energy to invest in the business in the future.

For analysts, the announcement was viewed as largely neutral, though by availing itself to potential future investments in the development business, Pattern Energy could find some additional upside.

"We positively view the new structure as it provides PEGI with optionality to participate in the development of early and mid-stage opportunities, which could provide an uplift to PEGI's returns," RBC Capital Markets analysts said on Dec. 14, maintaining their "outperform" rating on the company.

"We remain focused on the next potential drop-down transaction," Industrial Alliance Securities Inc. said in a Dec. 15 note. "We continue to see the 180-MW Meikle Wind Energy Project wind project in [British Columbia] as the next likely drop-down target."