NRG Yield – Well Hedged Yield Co With Great Growth Prospects Going Into 2015
NRG Yield is well hedged between renewable and conventional assets. Coal fired plants is being phased out – conventional gas and renewables will pick up the slack. NRG Yield´s total power capacity will increase 25% in 2015. NRG Yield (NYSE: NYLD ) operates a portfolio of thermal infrastructure and both conventional and renewable generation assets in mostly Northeast, Southwest and California regions of United States. The company focuses on returning cash flow back to shareholders and has established a goal to reach a 15% dividend growth per year for the foreseeable future. Currently roughly half of the power generation is contributed by conventional, mostly gas fired, power plants while the other half is primarily wind. The company has long term agreements to sell the generated power with an average contract duration of 18 years, providing certainty, although ultimately market prices determine the profitability of the operations. The management is actively seeking to expand the company’s portfolio by looking to acquire projects from NRG Energy and other energy companies that look promising from the cash flow perspective. Currently NRG Yield and NRG have entered an agreement for the acquisition of the following NRG facilities – Walnut Creek gas fired power plant with a capacity of 500MW and three wind farms with total capacity of 285MW. The deal will be financed by cash and revolving credit facility and is to close during this quarter. It will bring the NRG Yield´s total power capacity to 3769MW which represents a more than 25% increase from the current levels. Revenue increase by the same order of magnitude is to be expected. NRG stands out from the rest of the Yield Co-s, because its portfolio is well diversified between conventional and renewable assets (around 50% conventional gas fired plants and 50% solar and wind) offering more flexibility to fit the constantly changing regulatory landscape. The company´s conventional assets comprise of gas fired power plants, which are suitable to meet the requirements of peak generation. This is especially important in the light of aggressive renewable takeover induced by both new technology and regulatory incentives, because renewables are bringing about more instability when it comes to consumption and production equilibrium. The crux of the matter here is that it pays to be diversified between relatively green gas fired assets and renewables as the older coal fired plants are quite aggressively phased out by political moves . The energy sector, especially companies in the renewable energy business, have unfairly sold off along with the oil prices, although oil has very little to do with electricity markets – generating only roughly 4% of power globally. Going forward, NRG Yield is a well hedged play in the energy sector and will gain from the coming regulatory moves to support renewables and greener technologies. After all, the old power capacity has to be replaced with something. Renewables and more economical gas fired power plants are likely to pick up the slack – both of which are in the core asset portfolio of NRG Yield. The company offers a dividend of 3.4% and great growth prospects for 2015 and beyond considering its total production capacity will increase by 25% next year. Now that you’ve read this, are you Bullish or Bearish on ? Bullish Bearish Sentiment on ( ) Thanks for sharing your thoughts. Why are you ? Submit & View Results Skip to results » Share this article with a colleague