Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NextEra Energy Partners LP (NEP, Financial) reported a strong second-quarter performance with adjusted earnings per share increasing by more than 9% year over year.
- The company has identified a record $460 million in run-rate cost savings opportunities through 2027, benefiting both NEP and its customers.
- Energy Resources added over 3,000 megawatts of new renewables and storage projects to the backlog this quarter, marking the second-best origination quarter ever.
- NEP has a 300-gigawatt pipeline, half of which is in the interconnection queue process or already interconnection ready, positioning the company well for future growth.
- The partnership has approximately $2.7 billion of liquidity, providing a strong financial position to support future investments and growth.
Negative Points
- The reserve amortization mechanism has been utilized faster than expected due to accelerated growth, leading to a potential $0.06 impact on earnings per share in both 2024 and 2025.
- Contributions from the gas infrastructure business decreased by $0.07 per share due to higher depletion expense, non-recurring items, and the sale of Texas pipelines.
- The partnership's payout ratio is expected to be in the mid to high 90s through 2026, indicating a high level of cash distribution relative to earnings.
- There is uncertainty around the future of the IRA (Inflation Reduction Act) and potential political risks, although the company remains optimistic about the stability of renewable energy credits.
- The company faces challenges in managing supply chain risks and ensuring timely deployment of new projects, although it has made significant efforts to mitigate these risks.
Q & A Highlights
Q: Could you provide more details on the increased usage of reserve amortization and earned ROE?
A: John Ketchum, President, Chief Executive Officer: The increased usage is driven by significant population growth in Florida, impacting our service territory. Initially, we anticipated regulatory capital employed growth of around 9%, but it has been around 12% due to accommodating this growth. We currently have a surplus of $586 million, which we expect to maintain an 11.4% ROE for 2024 and 2025. This has a $0.06 impact each year, already factored into our financial expectations.
Q: Can you provide details on the $900 million Blackstone financing?
A: John Ketchum, President, Chief Executive Officer: The financing involves a 1.6 gigawatt portfolio of renewable assets. Blackstone invested capital alongside us, taking a partial interest in this portfolio. This demonstrates strong demand for NextEra assets in the private equity market.
Q: What are the options being considered for NEP to secure a competitive cost of capital?
A: Brian Bolster, Chief Financial Officer: We are exploring all alternatives to improve NEP's cost of capital, focusing on addressing the back-end SEPFs. Private capital is one potential avenue. We have time in 2024 and do not need growth equity until 2027, allowing us to be thoughtful in our approach.
Q: How do you navigate supply chain challenges as you expand development?
A: John Ketchum, President, Chief Executive Officer: We have leveraged our large program to transfer risks to suppliers, ensuring we are not impacted by tariffs or AD/CVD issues. Our strong relationships with suppliers and our data and analytical capabilities have positioned us well to manage supply chain risks.
Q: How do you view asset recycling and the mix of assets in your portfolio?
A: John Ketchum, President, Chief Executive Officer: We feel confident about our options for capital recycling, focusing on our core business of wind, solar, battery storage, and transmission. We are also considering targeted recycling of gas infrastructure and transmission assets to optimize our portfolio.
Q: What trends do you see in PPA pricing and how might it benefit NextEra?
A: Rebecca Kujawa, Chief Executive Officer, President: We continue to see strong returns and attractive pricing for our projects. The decreasing supply chain disruptions and stable backdrop have allowed us to offer competitive prices while maintaining attractive returns.
Q: How do you view the potential impact of the US election on the IRA and your renewable development plans?
A: John Ketchum, President, Chief Executive Officer: We have a long history of working with both sides of the aisle. The incentives within the IRA favor Republican states, and we expect the credits to remain in place due to their positive impact on jobs, property tax bases, and lower power prices.
Q: Can you provide more details on the Google relationship and hyperscaler deals?
A: Rebecca Kujawa, Chief Executive Officer, President: The Google contracts support data center demand and include a mix of wind, solar, and battery storage. Hyperscalers are increasingly interested in projects that directly support their data centers, and we are focused on delivering value for these customers.
Q: Is political instability impacting your ability to sign renewable contracts?
A: John Ketchum, President, Chief Executive Officer: Political instability is not curtailing demand for renewable contracts. If anything, it would accelerate demand if customers believed there were going to be modifications to the IRA.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
