The new NRG Yield affiliate of NRG Energy (NYSE: NRG) will control a series of gas-fired assets and renewable energy facilities, said NRG Yield in an initial Form S-1 statement filed June 7 at the SEC.
NRG Energy plans an initial public offering of the Class A common stock of NRG Yield, which was recently formed by NRG Energy. The number of shares to be offered and at what price isn’t filled in yet. With most IPOs, the Form S-1 goes through several iterations before that information is added, just before the IPO itself. After pricing of the offering, the Class A common stock of this new company would trade on the New York Stock Exchange under the symbol “NYLD.”
NRG Energy will beneficially own all of the outstanding Class B common stock upon completion of this offering.
“We own a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the United States,” NRG Yield said. “Our contracted generation portfolio includes three natural gas or dual-fired facilities, eight utility-scale solar and wind generation facilities and two portfolios of distributed solar facilities that collectively represent 1,324 net MW. Each of these assets sells substantially all of its output pursuant to long-term, fixed price offtake agreements to credit-worthy counterparties. The average remaining contract life, weighted by MWs, of these offtake agreements was approximately 16 years as of March 31, 2013.
The S-1 noted that the CVSR solar facility in California is in the final stage of construction with an expected commercial operation date (COD) in October 2013.
The new company also owns thermal infrastructure assets with an aggregate steam and chilled water capacity of 1,098 net MWt and electric generation capacity of 123 net MW. These thermal infrastructure assets provide steam, hot water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units in ten locations, principally through long-term contracts or pursuant to rates regulated by state utility commissions.
NRG Yield plans aggressive growth program
“We intend to utilize the significant experience of our management team to take advantage of what we believe are favorable industry and market dynamics as we execute our growth strategy,” the company added. “In addition to the opportunities to increase our cash available for distribution upon the COD of our CVSR facility, we expect to have the opportunity to increase our cash available for distribution and, in turn, dividend per share by acquiring additional assets from NRG, including those available to us under the ROFO Agreement, and to pursue additional acquisition opportunities that are complementary to our business from persons other than NRG.”
The ROFO Agreement will provide NRG Yield with the right of first offer to acquire the NRG ROFO Assets should NRG seek to sell any of these assets. The NRG ROFO Assets possess characteristics similar to those of NRG Yield’s initial asset portfolio including, among others, long-term offtake agreements with credit-worthy counterparties, limited or no commodity price risk, newly constructed assets with long useful lives and low emissions profile.
The ROFO assets are:
- NRG Energy’s remaining CVSR interest, solar, 128 MW (net), COD in 2013, has a 25-year contract to supply Pacific Gas and Electric (PG&E);
- NRG Energy’s Ivanpah solar interest (49.95%), 193 MW (net), COD in 2013, 20-25 year power deals with PG&E and Southern California Edison (SCE), (remaining 50.05% of Ivanpah is owned by NRG, Google and BrightSource Energy);
- El Segundo, natural gas, 550 MW (net), COD in 2013, 10-year contract with SCE;
- TA High Desert, solar, 20 MW (net), COD in 2013, 20-year deal with SCE; and
- NRG Energy’s Agua Caliente interest (51%), solar, 148 MW (net), COD in 2014, 25-year deal with PG&E, (remaining 49% of Agua Caliente is owned by MidAmerican Energy Holdings).
“NRG has informed us of its intention for Yield Inc. to serve as its primary vehicle for owning, operating and acquiring contracted renewable and conventional generation and thermal infrastructure assets,” the Form S-1 explained. “NRG will assist us in the pursuit of such acquisitions by presenting us with such opportunities and allocating resources as will be defined in the Management Services Agreement. In general, we do not expect to acquire assets that are in development or early stages of construction, and expect NRG to continue to pursue these opportunities for its own account. Under the Management Services Agreement, NRG will not be prohibited from acquiring or operating renewable and conventional generation and thermal infrastructure assets that are contracted.”
NRG has also informed NRG Yield that it intends to continue to pursue the development and construction of its currently-owned brownfield sites, where applicable, into electric generation assets and once completed it may decide to offer them for sale to NRG Yield.
NRG Yield’s conventional operations consist of 910 MW (net) of natural gas- and dual-fired generation assets, Marsh Landing and GenConn, located in the West and Northeast regions of the U.S., respectively.
- GenConn is a 50/50 joint venture with The United Illuminating Co. (UIL) and consists of two dual-fuel (natural gas and oil) simple-cycle generation facilities, located in Devon and Middletown, Conn. Each GenConn facility has a rated capacity of 190 MW, or 95 net MW.
- In May 2013, the company completed the construction of the 720-MW (net) Marsh Landing natural gas-fired peaking facility on a brownfield site near the city of Antioch, Calif. Marsh Landing sells all the energy and capacity it generates and ancillary products and services to PG&E under a 10-year tolling agreement.
Utility Scale Solar Operations:
NRG Yield’s seven utility-scale solar generation assets generate electricity through the use of photovoltaic panels, with each facility equal to or exceeding 20 MW and collectively totaling 303 net MW of capacity. These facilities are located in Arizona, California and New Mexico, all states with attractive solar resources. These facilities have long-term offtake agreements with credit-worthy counterparties, consisting primarily of investment grade regulated electric utilities, with a weighted average remaining contract life of over 22 years as of March 31, 2013. In addition, all of these facilities have secured long-term debt financing as of March 31, 2013.
As of March 31, 2013, the Alpine, Avenal, Avra Valley, Blythe, Borrego, and Roadrunner facilities, representing a total of 203 rated MW, were in operation and generating cash flows.
The utility-scale solar generation facilities also include a 48.95% ownership interest in CVSR, a 250 rated MW solar facility under construction in California. CVSR began construction of its four phases in September 2011. As of March 31, 2013, three of its phases totaling 127 rated MW had achieved COD and were generating electricity under CVSR’s two 25-year PPAs with PG&E with total project construction approximately 90% complete as of April 30, 2013. CVSR’s final phase will reach COD in October 2013.
CVSR’s project-level financing includes a $1.2bn construction and permanent financing facility guaranteed by the U.S. Department of Energy (DOE). The company intends to utilize draws under CVSR’s DOE committed construction facility and to use a portion of the proceeds retained by it from this stock offering to fund its required capital contributions to pay for its portion of CVSR’s remaining construction costs. It expects the asset will be fully financed following completion of this offering. The remaining 51.05% ownership interest in CVSR is held by NRG Energy and will be subject to the ROFO Agreement should NRG seek to sell its remaining interest.
Distributed Solar Operations:
The distributed solar generation facilities, which are generally defined as facilities of less than 20 MW in operating capacity, each generate electricity through the use of photovoltaic panels. Customers for these facilities are located in California and Arizona and primarily include governmental offtakers which are predominately of investment grade quality with offtake terms ranging from 15 to 20 years. The distributed solar generation facilities are deployed either on the customer’s roof, parking facilities (as a canopy) or as ground mounted (open space) installations.
NRG Yield intends to finance the acquisition of future distributed solar generation facilities through proceeds from new equity offerings, the use of cash on hand or through various project financing structures or “portfolios.”
Its distributed solar assets include two portfolios—a 100% membership interest in various facilities in Arizona (collectively, the “AZ DG Solar Projects”) and a 51% membership interest in various facilities in California (collectively, the “PFMG DG Solar Projects”). Each of the AZ DG Solar Projects and the PFMG DG Solar Projects consists of multiple sites with an aggregate 5 net MW.
The company’s wind operations are comprised of the 101-MW South Trent wind farm located near Sweetwater, Texas. It consists of 44 Siemens 2.3-MW wind turbines. The South Trent generation asset has a 20-year PPA with AEP Energy Partners, a subsidiary of American Electric Power (NYSE: AEP). NRG acquired South Trent in June 2010 and financed the acquisition through a long-term non-recourse term loan which NRG Yield will retain.
Thermal operations for NRG Yield are comprised of district energy systems and combined heat and power plants (collectively, “Energy Centers”) that utilize an energy-efficient, environmentally sound method of heating and cooling buildings. These Energy Centers produce steam, hot water and/or chilled water and in some instances, electricity at a central plant. The steam or water is then piped underground to individual buildings within a specific area for heating, cooling or industrial use.
The company will have eight Energy Centers located in Arizona, California, Delaware, Minnesota, New Jersey and Pennsylvania totaling about 1,098 net MWt in capacity. It also operates five power generation and/or thermal facilities on behalf of customers under long term operating agreements. Its thermal contracts are long-term, typically 20 years at initiation, and have negotiated rates and/or have rates that are regulated by the applicable state public utility commission.
NRG Yield has over 550 steam and chilled water customers, with no one customer expected to account for more than 10% of estimated 2013 thermal revenue. Electricity produced by the 123 net MW of thermal generation assets is either sold to customers under contracts or to the local power grid. A majority of the projected gross margins from the thermal generation assets for the twelve months ending June 30, 2014 and 2015 are attributable to expected payments for electric capacity resources sold through the reliability pricing model (RPM) auctions administered by PJM Interconnection. On June 1, 2013, the conversion of the Dover Energy Center coal-fired turbine to a natural gas-fired turbine was completed. The natural gas-fired turbine supplies steam to the existing steam turbine in a combined cycle mode.