NextEra Energy Partners (NEP)

Company website 2020 Financial Report Stock Analysis 2020 ESG Report

5.8

Gigawatts

of renewable energy capacity in NextEra's portfolio in 2020

More Gigawatts

NextEra has potential for ~14 GW addition in renewable energy capacity by 2024

4.7

Billion Gallons

of avoided water withdrawal in 2019 because of investments in water-free solar and wind energy

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The Path to Drawdown: Solar and Wind

If we want to solve climate change and remain below 1.5ºC of global warming, the world needs to switch from fossil fuels to using 100% emissions free sources to generate power by 2050.

Utility-Scale Solar

One of the largest source of this clean energy is the sun (barring advances in nuclear fusion). Photovoltaic or PV solar panels have emerged as the predominant way of capturing the sun's energy and converting it into electricity.

The industry has been growing fast and, as of 2020, solar panels are now the cheapest source of electricity in most places on earth.

Solar produces ~2% of global electricity today. According to Project Drawdown, to be on track to remain under 1.5ºC of warming, utility scale solar (as opposed to rooftop solar) will need to generate a combined ~26% of global electricity by 2050.

To get there, the PV solar industry is going to need to continue to massively scale over the few next decades:

<::marker> 720 TWh of solar electricity generated in 2019
<::marker> 28,200 TWh needed by 2050
<::marker> CAGR of 12.56% from 2019 - 2050

Another analysis from the IEA forecasts that in order to reach a 100% clean electricity grid by 2050, annual solar panel manufacturing capacity will need to scale from 134 GWs in 2020 to 630 GWs in 2030 (p. 74).

Onshore Wind

Onshore wind turbines account for 4.36% of global electricity generation in 2020.

Global wind capacity has been growing steadily, increasing around 20% per year for the past decade, including an 11% capacity growth in 2019-2020. Thanks to this expansion and advancements in turbine design, the cost of electricity generated from onshore wind continues to fall, even in areas with low wind speeds.

According to Project Drawdown, to be on a path to remain under 1.5C° of warming, onshore wind turbines will need to be generating a combined 28.85% of global electricity by 2050.

To get there, the onshore wind industry will need to continue to scale over the next few decades

<::marker> 1,150 TWh of onshore wind electricity generated in 2018
<::marker> 19,460 TWh needed by 2050
<::marker> CAGR of 9.38% from 2019 - 2050

The IEA forecasts (p. 74) that, to reach a 100% clean electricity grid by 2050, annual onshore wind capacity additions will have to increase from 109 GWs in 2020 to 310 GWs in 2030.

Importance of Yieldcos in Financing Renewable Energy

Yieldcos play a crucial role in financing renewable energy developers. Developers of utility-scale renewable energy navigate significant uncertainties when building new solar or wind plants. Yieldcos were established to give developers a steady source of capital for future projects and to protect investors in renewable energy stocks from these uncertainties.

Yieldcos are publicly traded corporations that own and operate renewable energy assets. Their assets generate long-term, low-risk cash flows, which are then distributed to investors as dividends. Sustained investor interest in yieldcos could continue to channel capital into renewable energy developers, making them competitive against high-carbon alternatives.

About

NextEra Energy Partners (stock ticker: NEP) is a yieldco formed by NextEra Energy, Inc. Based in Juno Beach, Florida, NEP acquires, operates and manages wind and solar projects, as well as natural gas pipelines across 19 states (p. 8) in the United States.

NEP's Role in Drawdown

NEP’s combined solar and wind generation capacity was 5.83 GWs in 2020. This was the equivalent to 2.4% of the global solar and wind capacity. Assuming the renewable energy space continues to grow as forecasted by the IEA (p. 74), NEP would need to increase their capacity to 22.5 GWs by 2030 to maintain its current market share.

This level of growth would require a 14.5% annual increase in generation capacity. NEP’s renewable capacity has grown by over 10% annually since 2017, and we believe they are well-positioned to ramp up this growth to meet its 2030 target.

NEP: What We Like

As of 2020, NEP enjoyed the largest scale of renewable energy capacity among other yieldcos, and their generation capacity has grown over the last few years. This means they’re significantly supporting the push toward avoiding GHG emissions:

<::marker> 10.8% annual growth in renewable energy capacity since 2017, from ~3.8 GWs in 2017 to 5.8 GWs in 2020.

9.7 million (p. 12) tons of CO2 avoided through renewable energy generation -- that’s 150x NEP’s Scope 1 emissions and equivalent to taking 1.9 million passenger vehicles off the road for one year.

What We Want to See Improve

Reduce GHG emissions

NEP’s emissions from its natural gas pipelines increased by almost 64% between 2017 and 2020, from 24,340 tons to 64,179 tons of CO2 equivalent (p. 14). While these emissions are dwarfed by the amount of CO2 emissions avoided by NEP’s renewable power generation, this increase in emissions is unacceptable. Just as its parent company, NextEra Energy, has committed (p. 27) to significantly reduce COe emissions, we would like to see NEP work to reduce their GHG emissions from all operations.

Track Scope 2 & 3 emissions

NEP’s parent company NextEra Energy publishes its own GHG emissions, as well as its subsidiaries’. We would like to see similar reporting of scope 2 and 3 emissions in NEP’s annual reports so that investors can transparently evaluate its climate impact.

Set goals to transition to 100% zero-carbon assets

Today, NEP’s natural gas pipeline operations account for 23.3% of its total revenues. As NEP acknowledges (p. 16), these operations are vulnerable to changes in demand and market conditions, endangering a sizable portion of its cash flows. According to the IEA, trade in natural gas by pipeline needs to fall by 65% (pp. 102-3) between 2020 and 2050 in order to achieve net zero emissions. If the world achieves this reduction, NEP’s pipelines risk becoming stranded assets. To avoid this scenario, we would like to see NEP set a clear timeline to transition to 100% renewable energy assets in the near future.

Related Yieldco Stocks in the Climate Index

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Allocated	Company	Description
0.96%	Brookfield Renewable Energy Corporation (BEPC)	BEPC owns hydroelectric, wind, and solar assets across the world, offering clean energy to utilities. Yieldcos are key to expanding clean energy
0.45%	Clearway Energy, Inc. (CWEN)	Clearway Energy owns and operates a portfolio of solar, wind, and other energy sources. Yieldcos are key in expanding investments into renewables
0.42%	NextEra Energy Partners (NEP)	NextEra is a yieldco that operates wind and solar farms as well as natural gas pipelines in the US. Yieldcos help raise investments for clean energy
0.28%	Atlantica Yield (AY)	Atlantica Yield is a yield that owns 1.6 GW of renewable energy assets around the world. Yieldcos are valuable key in expanding investments in renewables