U.S. renewable energy developer NextEra Energy Inc. said Oct. 28 it plans to grow its renewable natural gas portfolio after acquiring assets from owners of the Energy Power Partners Fund I LP and North American Sustainable Energy Fund LP in a $1.1 billion deal plus debt.
The Florida-based renewables energy powerhouse intends to spend about $400 million to convert the funds’ portfolio of landfill gas-to-electric projects and assets to renewable natural gas (RNG) and build a services company with the existing portfolio.
“This acquisition supports our renewable fuels strategy and our broader vision to lead the decarbonization of the U.S. economy,” NextEra Energy CEO John Ketchum said in the company’s third-quarter 2022 earnings release. “We are as confident as ever about our long-term growth prospects, and we will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectations ranges for 2022 through 2025, while at the same time maintaining our strong balance sheet and credit rating.”
The company said it expects NextEra Energy Resources, the company’s clean energy unit, will deliver more than $220 million of adjusted EBITDA by 2025 with the acquired assets.
“Moreover, the acquisition is expected to deliver double-digit returns,” NextEra Energy CFO Kirk Crews said on the company’s earnings call Oct. 28. “We are particularly excited about additional upside opportunities the portfolio may enable that are not included in our base case and look forward to potentially deploying additional capital in new ventures that may qualify for new federal incentives.”
The acquisition, which includes about $37 million in estimated project finance debt, is expected to close in early 2023, subject to regulatory approvals.
RNG has been attracting investment lately as companies see opportunity in its lower carbon profile and its decarbonization abilities. Coupled with incentives in the Inflation Reduction Act, companies—including traditional oil and gas players—are targeting RNG assets that captures naturally occurring methane from places like landfills, dairy farms and other sources.
Last week, BP announced plans to acquire RNG producer Archaea Energy for $4.1 billion, marking one of the largest energy deals this year and the largest ever for RNG.
“One of the reasons why we’re really excited about the transaction, though, is there’s a lot of optionality in it—some of which was afforded in the Inflation Reduction Act,” NextEra Energy Resources CEO Rebecca Kujawa told analysts on the call. “One is these projects now qualify for an investment tax credit, which obviously enhances the economics of the conversion.”
It also paves a potential pathway for blue hydrogen, something Kujawa said opens a new market for RNG that will be attractive to blue hydrogen producers and enable them to capture the full value of production tax credits.
“In doing that, we think that creates a real long term contracted market because the blue hydrogen producer will be very motivated to lock in the value that renewable natural gas blending world will bring to their economics,” she said.
If the road taken doesn’t include blue hydrogen, upside could come in producing electricity from the acquired assets, enabling the advancement of electric vehicles.
“I think the bottom line is we’re very excited about it. We think this a great platform from which to grow our renewable fuel business, renewable energy solutions, in order to help our customers across a broad set of sectors, both in the power sector and beyond, to enable their full decarbonization,” Kujawa said.
NextEra Energy plans to invest between $85 billion and $95 billion between 2022 and 2025, growing many parts of its business.
The company brought in nearly $1.7 billion in net income for third-quarter 2022, up from about $1.5 million a year earlier, as demand for renewable energy surges amid global energy security concerns.
NextEra Energy Resources signed about 2,345 megawatts of new renewables and storage projects in the third quarter. The unit’s adjusted earnings rose about 18% to $729 million. It now has about 20,000 MW in its backlog of signed contracts.
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