Duke Energy (N/R)  – Sale process drawn out raises eyebrows on potential equity.

In our Transition Files vol 2 piece, we noted that a key tenet of the energy transition is balance sheet integrity. Duke’s commercial renewable business sale, optically to some would send signals of unaligned net zero corporate strategy, but is more so an attempt to protect balance sheet integrity to execute on recycling capital into the core utility business with an emphasis on utility owned renewable investments. On the Q1 call DUK management alluded to a slowed sale process of the 3.5GW of Duke Commercial Renewables business, as the company took a $220m impairment charge on the assets. The prolonged sale process shines a light on a weakening M&A landscape, as a glut of renewable portfolios have recently transacted at peers Consolidated Edison (ED) and American Electric Power (AEP). Based on our analysis we estimate an equity need of$1.1B, before impact of sale and deferred fuel recoveries (See Within for Math). Balance sheet integrity is a crux for the company to execute on the ‘wind down and backfill’ strategy (run out fossil and build renewables) we reference this in our previous note.

NEP (N/R) IDR Relief as Renewables come into focus

NextEra (NEE)  announced Incentive Distribution Rights (IDR) relief at NEP as the company initiates the sale process of the South Texas and Meade pipelines. The company is looking to use proceeds from the sale to reduce equity needs and redeem the outstanding convertible equity preferred shares (CEPFs) through 2025. In our recent Transition Files Vol 2 we highlighted the potential for renewable development at NextEra Energy Resources (NEER) above what is currently projected. In our view the sale opens up balance sheet capacity to further execute on the renewables strategy at NEER and drop assets into NEP. Note NEP is the key financing vehicle for NEE’s unregulated renewables. It remains to be seen if management will suspend the IDRs indefinitely. We offer our views on the pipes transaction multiples to open up balance sheet capacity at NEP for drops (see within for math).