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Low returns keeping Pattern Energy away from US solar market, CEO says

Pattern Energy Group Inc. CEO Michael Garland said the company is steering clear of solar acquisitions in the U.S., noting that concerns about low investment returns outweigh the benefits that could come from diversifying the company's portfolio of wind farms.

The company holds an ownership interest in 26 power plants totaling approximately 4,000 MW in the U.S., Canada and Japan. It aims to grow its cash available for distribution, or CAFD, to shareholders by 10% annually through 2020 through a combination of acquisitions and distributions from its affiliate, renewable energy developer Pattern Development. CAFD is a key metric for yieldcos such as Pattern Energy that seek to grow dividend payments to shareholders.

While Pattern Development has a 10,000-MW pipeline that includes some solar projects, Pattern Energy is likely to take a pass on those assets for now, Garland said on an Aug. 6 earnings call.

"In the near term, I think you can assume that we're going to divest" Pattern Development's solar projects to third parties, Garland said. "[We] have been loath to buy solar because the returns are so low. Now, if we could get an opportunity where the returns are more attractive, we would absolutely execute on it, but right now, the market is so strong that it's driving down returns still even further."

Pattern Energy said Aug. 6 that it has bought stakes in a pair of wind farms in Canada for $44 million. The deals were announced shortly after the company secured a $250 million loan on the same day the Federal Reserve lowered its benchmark interest rate. The latest acquisitions put Pattern Energy on track to hit its growth targets for 2019 and 2020, Garland said.

"The environment for renewables in our core markets remains strong," Garland told analysts, pointing to continuing cost declines and softening U.S. interest rates, which he said help capital-intensive companies.

Pattern Energy reported second-quarter adjusted EBITDA of $102 million, which beat analysts' estimates but was below the company's year-ago results. Revenue of $140 million was flat year over year but lower than the company expected as wind production came in below the long-term average, CFO Esben Pedersen said. CAFD totaled $53 million, down from $59 million a year earlier.

The company maintained guidance for 2019 CAFD at between $160 million and $190 million. Full-year results will depend on the availability of wind resources and spot power prices, Garland said.