A Renewable Energy Giant Makes a $1 Billion Bet on Natural Gas

(Bloomberg) -- One of America’s biggest renewable-energy companies is making a bet on natural gas.

NextEra Energy Partners LP agreed to buy Meade Pipeline Co., an owner of a pipeline that provides gas from Pennsylvania, in a deal valued at about $1.37 billion, according to a statement Monday.

While NextEra Energy Partners already owns pipelines in Texas, it’s viewed by many investors as a wind and solar company, owning 5 gigawatts of renewables as of mid-June. The move to buy a pipeline comes as utilities and cities across the U.S. are pushing to drastically cut back on burning fossil fuel.

“It is slightly surprising that NEP doubled-down on gas exposure,” Pavel Molchanov, an analyst at Raymond James, said in an interview Monday. “This is not what the company has generally been focused on.”

Shares of NextEra Energy Partners gained as much as 1.7% Monday.

‘Clean Energy’

NextEra Energy Partners expects the deal to yield a double-digit return. Plus, the pipeline will help balance any “potential resource volatility” in the company’s existing portfolio, Jim Robo, chairman and chief executive officer, said in the statement.

“Listen, when we did the original IPO, now I guess more than 5 years ago, we said the focus was going to be on clean-energy assets -- and I view gas pipelines as clean energy,” Robo said on a call with analysts. “Gas is an important bridge to a low- or zero-carbon future, 30 years out.”

While gas-fired generators emit fewer emissions than coal plants, environmentalists and local governments are increasingly pushing to phase out fossil fuels altogether as part of their efforts to fight climate change. In July, Berkeley, California, became the first U.S. city to ban natural gas from most new buildings. Its Bay Area neighbor, San Jose, followed suit with a ban on gas in most residential buildings. Other cities -- including San Francisco and Seattle -- are considering the move.

Even NextEra Energy Partners’s parent company -- which Robo also runs -- is pushing to cut greenhouse gases, saying it will reduce its carbon dioxide emissions 40% by 2025, while doubling electricity production. The company, NextEra Energy Inc., is already the biggest U.S. wind and solar owner.

Meade owns a roughly 40% interest in the Central Penn Line, a 185-mile (298-kilometer) interstate pipeline that connects the Marcellus Shale basin in Pennsylvania to the mid-Atlantic and Southeast. The deal is expected to close within the next 60 days, and it includes a $90 million expansion project expected to be completed in mid-2022. The Marcellus is the biggest source of U.S. natural gas.

NextEra’s existing seven gas pipelines include the NET Mexico system, which carries U.S. shale gas south of the border.

“Those types of assets, combined with renewables, give you a very solid base,” Robo said on the call.

--With assistance from Naureen S. Malik.

To contact the reporters on this story: Brian Eckhouse in New York at beckhouse@bloomberg.net;David R. Baker in San Francisco at dbaker116@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, ;Lynn Doan at ldoan6@bloomberg.net, Joe Ryan, Christine Buurma

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