NextEra Energy Partners(NEP) - 2023 Q4 - Annual Report

Definitions This section defines key acronyms and terms used in the report, clarifying terminology related to operations, agreements, and regulatory bodies - The report defines key terms such as ASA (administrative services agreement), BLM (U.S. Bureau of Land Management), FERC (U.S. Federal Energy Regulatory Commission), IDR fee (incentive distribution right fee), MSA (Management Services Agreement), MW (megawatt), MWh (megawatt-hour), PPA (power purchase agreement), PTC (production tax credit), ITC (investment tax credit), ROFR (right of first refusal), RPS (renewable portfolio standards), and SEC (U.S. Securities and Exchange Commission)[10] - For convenience, 'NEP' and 'NEP OpCo' are sometimes used as abbreviated references to specific subsidiaries, affiliates, or groups of subsidiaries or affiliates, with the precise meaning depending on the context[10] Forward-Looking Statements This section clarifies forward-looking statements involve estimates and uncertainties, directing readers to 'Item 1A. Risk Factors' for material factors - Forward-looking statements are not historical facts and involve estimates, assumptions, and uncertainties, qualified by important factors in 'Item 1A. Risk Factors'[15] - NEP undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the statement's date, unless required by law[16] Part I Business Overview NEP is a growth-oriented limited partnership owning contracted clean energy assets, including renewables and natural gas pipelines - NEP's strategy emphasizes acquiring, managing, and owning contracted clean energy assets with stable long-term cash flows, focusing on renewable energy projects[18] NEP's Ownership Structure (as of December 31, 2023) | Entity | Ownership Interest | | :----- | :----------------- | | NEP OpCo | 48.6% limited partner interest | | NEE | 2,377,882 NEP common units | | NEE Equity | ~51.4% of NEP OpCo's common units & 100% of NEP OpCo's Class B partnership interests | - NEP's portfolio includes wind, solar, solar-plus-storage, and stand-alone battery storage projects across 31 states, and contracted natural gas pipeline assets[18][21][25] Renewable Energy Generation (2023 vs. 2022) | Year | Wind (MWh) | Solar (MWh) | | :--- | :--------- | :---------- | | 2023 | 25.8 million | 3.8 million | | 2022 | 23.8 million | 3.4 million | - In 2023, NEP sold its interests in a portfolio of seven natural gas pipelines in Texas[25] - NEP derived approximately 14% of its consolidated revenues from Pacific Gas and Electric Company and 11% from Mex Gas Supply S.L. in 2023[28] - Growth in renewable energy is largely attributable to increasing cost competitiveness, government incentives (e.g., accelerated depreciation, PTCs, ITCs, RPS programs), improving technology, and declining installation costs[31][33][35] - The Inflation Reduction Act of 2022 (IRA) expanded PTCs to include solar generation facilities and extended the 100% PTC and 30% ITC to wind and solar facilities, also including storage projects for the 30% ITC[36][37] - Renewable energy tax credits generated after 2022 can be transferred to an unrelated purchaser for cash[38] - NEP's business strategy includes focusing on long-term contracted clean energy projects in North America, maintaining a sound capital structure, leveraging NEER's operational excellence, and growing through selective acquisitions and wind turbine repowering[40][44] - NEP's competitive strengths include NEE's management and operational expertise, repowering opportunities, contracted projects with stable cash flows (weighted average remaining contract term of approximately 13 years at December 31, 2023), and geographic and resource diversification[42][43][44][45] - NEP's projects are subject to regulation by various U.S. federal, state, and other organizations, including FERC, NERC, EPA, and state agencies, as well as environmental laws like the Endangered Species Act and Migratory Bird Treaty Act[46][47][50] - NEP does not have any direct employees and relies solely on employees of affiliates of the manager under the MSA, including employees of NEE and NEER, to serve as officers of NEP[48] Risk Factors This section details performance, contract, acquisition, financial, and relationship risks materially affecting NEP's business and distributions - Performance risks include variability in wind and solar conditions, exposure to basis risk, operational failures, severe weather events, and reliance on a few key projects, which could reduce output or increase costs[52][53][56][60] - Repowering renewable energy projects requires significant upfront capital and exposes NEP to regulatory, environmental, construction, safety, political, and legal uncertainties, potentially leading to cost overruns or delays[61] - Geopolitical factors, terrorist acts, and cyberattacks (including those leveraging artificial intelligence) could severely damage projects, disrupt business operations, result in loss of service, and incur significant repair or remediation costs[62][63][64] - Reliance on third-party interconnection and transmission facilities to deliver energy or transport natural gas poses risks of unavailability, which could adversely affect project operations and revenues[66][68] - NEP's business is subject to liabilities and operating restrictions from environmental, health, and safety laws and regulations, compliance with which may require significant capital expenditures, increase operating costs, or limit business plans[69][70] - New or revised laws or regulations, interpretations, or non-compliance with energy and pipeline regulations (e.g., FERC, NERC) could adversely affect project revenues, operations, and financial condition[71][73][74] - NEP does not own all land for its projects, and its use may be adversely affected by superior rights of lienholders, land rights holders, or suspension of federal rights-of-way grants by the BLM[75][78][79] - NEP is subject to risks associated with litigation or administrative proceedings, including those contesting project operations, construction, or repowering, or claims related to wind turbine impacts, which could increase costs or delay projects[80][81] - Contract risks include reliance on a limited number of customers, potential for customer non-performance or termination of agreements, and the inability to extend, renew, or replace expiring contracts at favorable rates[85][89][90] - Acquisition risks involve difficulties in identifying attractive projects, competition from larger entities, inability to obtain financing, regulatory hurdles, and challenges in integrating acquired businesses, potentially hindering growth[92][98][99][110] - Government laws, regulations, and policies providing incentives and subsidies for clean energy could be changed, reduced, or eliminated, negatively impacting NEP's ability to acquire projects and their economic viability[101][103] - Financial risks include inability to access capital on commercially reasonable terms, restrictive covenants in financing agreements, inability to maintain credit ratings, and potential reduction of cash distributions due to subsidiary restrictions or buyouts of noncontrolling interests[115][119][121][122] - NEP is exposed to risks inherent in its use of interest rate swaps, which do not eliminate market volatility or prevent losses, and whose valuation involves significant judgment[129] - Widespread public health crises and epidemics or pandemics may have material adverse impacts on NEP's business, financial condition, liquidity, and results of operations[130] - Risks related to NEP's relationship with NEE include NEE's influence over NEP's board and management, potential conflicts of interest, limited duties of NEP GP and directors, and NEER's right of first refusal on asset sales[131][140][142][144] - Reimbursements and fees owed to NEP GP and its affiliates for services provided to NEP will reduce cash distributions, and there are no limits on the amount NEP OpCo may be required to pay[167] - Increases in interest rates could adversely impact the price of NEP's common units, its ability to issue equity or incur debt for acquisitions, and its ability to make cash distributions to unitholders[168] - Taxation risks include potential for higher-than-expected tax liability if net operating losses (NOLs) are insufficient or challenged, limitations on the ability to use NOLs,