Renewable energy developer buys a natural gas pipeline
David Wagman | October 02, 2019NextEra Energy Partners said it will buy Meade Pipeline Co., itself a part owner of a 185-mile-long natural gas pipeline that links the Marcellus producing region with access to demand centers in the mid-Atlantic and Southeastern U.S.
The deal is valued at roughly $1.37 billion, including around $90 million in future capital contributions through 2022, which are related to an expansion opportunity at the existing pipeline.
The Central Penn Line can transport and deliver up to around 1.7 billion cubic feet (Bcf) of natural gas per day. It is backed by a minimum 14-year contract and is jointly owned by Transcontinental Gas Pipe Line Co., which operates the pipeline as a segment of its larger Atlantic Sunrise project.
NextEra Energy said that Meade Pipeline is expected to yield a double-digit return to its limited partner shareholders and generate cash available for a distribution yield of around 14%.
In recent years, NextEra Energy has built a reputation as a renewable energy developer. The U.S. wind market is on track to add 14.6 gigawatts (GW) of generating capacity in 2020, according to research published by consulting firm Wood Mackenzie. But phase-out of the federal Production Tax Credit (PTC) beginning in 2021 will likely cut into future development opportunities. Wood Mackenzie forecasts the U.S. will add 12.3 GW of wind power in 2021, before falling to roughly 5.9 GW in 2024.
In addition to owning interests in wind and solar projects in the U.S., NextEra Energy also owns seven natural gas pipelines that serve power producers and municipalities in South Texas, processing plants and producers in the Eagle Ford Shale, and commercial and industrial customers in the Houston area. The NET Mexico Pipeline, the largest pipeline in the company's portfolio, provides natural gas transportation for U.S.-sourced shale gas exports to Mexico.
NextEra Energy's CEO, Jim Robo, was quoted as telling analysts that he views gas pipelines as clean energy, with natural gas representing "an important bridge to a low or zero-carbon future, 30 years out.”
The potential pipeline expansion opportunity as part of the Meade Pipeline deal would add an estimated 0.6 Bcf per day of natural gas capacity to Central Penn through the addition of compression at new and existing stations. Meade would own 40% of the expanded capacity and receive an additional fixed-lease payment for 20 years from the in-service date. The expansion is expected to be completed in mid-2022, subject to regulatory approvals.
