NextEra Energy Inc.'s chief executive responsible for renewable development says there is no shortage of growth opportunities in the U.S. renewables market, but it is unlikely to include offshore wind or commercial and industrial projects for now.
Fresh off announcing its drop down of the 250-MW Golden West Wind Farm to NextEra Energy Partners for some $420 million, NextEra Energy Resources LLC President and CEO Armando Pimentel delivered a candid view of the renewables market emphasizing NextEra's traditional utility off-take model as the primary driver of demand in its pipeline.
NextEra Energy Resources says it has signed contracts to develop about 1,500 MW of wind and solar in the U.S. and claims 3,900 MW of capacity in sight through 2018. The company tacked on an additional 621 MW of contracted backlog it sees beyond 2018.
But the company has low expectations for the role of offshore wind and commercial and industrial, or C&I, projects in driving much of its development projects, citing risks that outweigh the rewards relative to the power purchase agreement model.
"There are an enormous number of hurdles ... and then you get to the biggest hurdle, which is just, it is bad economics for customers," Pimentel said of offshore wind on the company's April 21 earnings call. "It is really not good for customers to be doing offshore wind relative to solar or onshore wind. So to say that we are not fans would be an understatement."
One example of where NextEra is finding atypical opportunities, outside its long-term contracted projects, is the build and sell model recently employed with Xcel Energy Inc.
NextEra said its deal with Xcel helped it tee up roughly 1,000-MW of wind capacity to develop and sell prior to commercial operations. Such a model could be replicated in the future, specifically with legacy customers, NextEra Energy Chairman, CEO and President James Robo said.
"With a build-own-transfer like we are able to do with Xcel, where you can see an opportunity to generate an attractive [net present value] off of the sale and get contracts back from a customer that has been one of your largest customers, those can be attractive situations," Robo declared.
Still, rate-basing opportunities will remain a relatively small share of the addressable market. "The rate base market is just not that large," Pimentel added.
On the C&I market, NextEra indicated that non-utility-scale level projects could ultimately comprise about 20% of the company's development pipeline in the future. But for now, the risks appear large enough to keep NextEra focused on the market for contracted assets.
"It is a market that we will probably do more of than we've done in the past in certain regions," Pimentel said of C&I. "But it's also a market that doesn't make sense for us in certain regions where folks are looking for very short-term contracts in places where we've got to take a significant amount of merchant risk in the term year."