NRG Energy agrees on first “drop down” deal with NRG Yield

On May 5, NRG Yield (NYSE: NYLD) entered into a definitive agreement with NRG Energy (NYSE: NRG) to buy three facilities for $349m to be paid with cash on hand, including the assumption of $657m of project debt.

Those facilities, called the ROFO Assets, are:

  • TA High Desert – 20-MW solar facility located in Los Angeles County, Calif.:
  • RE Kansas South – 20-MW solar facility located in Kings County, Calif.; and
  • El Segundo Energy Center – 550-MW fast-start, gas-fired facility located in Los Angeles County, Calif.

“Having established with NRG a fair and workable drop down process in connection with the first set of NRG ROFO assets, NRG Yield is well positioned to substantially grow its dividend,” said NRG Yield Chairman and Chief Executive Officer David Crane in a May 6 earnings statement. “In addition, NRG Yield’s strong liquidity position, enhanced by the recent convertible debt issuance and increase in the Company’s revolver, permits the Company to execute on its growth plans – including the acquisition of the EME eligible assets.”

EME is Edison Mission Energy, which NRG Energy acquired out of bankruptcy court. On April 1, NRG Energy closed the acquisition of EME, bringing NRG Energy’s total fleet to approximately 53,000 MW of generating capacity – the second largest in the U.S. This transaction added about 7,700 MW of generation assets, including 1,600 MW of long-term, fully-contracted assets eligible for future drop-down to NRG Yield.

The sale of the ROFO Assets to NRG Yield is subject to certain third party and regulatory approvals and is expected to close this quarter. These assets will augment NRG Yield’s portfolio with an additional 40 MW of solar and 550 MW of fast-start natural gas generation.

Drop-down sales to NRG Yield are likely to be a regular occurence. NRG Energy on April 18 asked the Federal Energy Regulatory Commission for “blanket” authorization to sell to affiliate NRG Yield at various points over the next three years several power plants. NRG Energy said it currently owns approximately 65.5% of the voting securities and thus controls NRG Yield. NRG Yield acquired various assets from NRG Energy in July 2013, prior to an initial public offering of its Class A shares. A key part of NRG Yield’s growth strategy involves acquisitions of additional contracted generation and thermal infrastructure assets from NRG Energy.

NRG Energy told FERC that it and NRG Yield have entered into an agreement under which NRG Energy grants NRG Yield a right of first offer on the following assets:

  • NRG Energy’s interests (51%) in Agua Caliente Solar LLC, which owns and operates an approximately 290 MW (nameplate rating) solar facility in Yuma County, Arizona;
  • The remaining interests in High Plains Ranch II LLC (51.05%). NRG Yield had already acquired 48.95% of the membership interests in High Plains, which owns and operates an approximately 250 MW (nameplate rating) solar project (the California Valley Solar Ranch);
  • All of the interests in El Segundo Energy Center LLC (ESEC), which owns and operates an approximately 550 MW (summer rating) natural gas-fired generation facility in El Segundo, Calif.;
  • All of the interests in TA High Desert LLC, which owns and operates an approximately 20 MW (nameplate rating) solar facility (the Antelope Power Plant Project) in Lancaster, Calif.;
  • NRG Energy’s interests (49.95%) in Ivanpah Master Holdings LLC, which indirectly owns 100% of the interests in three other generators: Solar Partners I LLC, which owns and operates an approximately 129 MW (nameplate rating) solar facility (Ivanpah II) in San Luis Obispo County, Calif.; Solar Partners II LLC, which owns and operates an approximately 126 MW (nameplate rating) solar facility (Ivanpah I) in San Luis Obispo County; and Solar Partners VIII LLC, which owns and operates an approximately 140 MW (nameplate rating) solar facility (Ivanpah III) in San Luis Obispo County;
  • All of the interests in NRG Solar Kansas South LLC, which owns an approximately 20 MW (nameplate) solar facility in Lancaster, Calif.

NRG Yield owns a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the U.S., including fossil fuel, solar and wind power generation facilities that provide the capacity to support more than 1 million American homes and businesses. Our 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 more than 23 locations.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.