Nextera Energy Inc

NYSE:NEE

Earnings Call Analysis

NextEra Energy's Strong Cash Flow and Growth

NextEra Energy experienced robust growth in 2023, with cash flow from operations significantly outpacing adjusted earnings. The company transferred ~$400 million in tax credits, a move expected to offer a competitive edge. Looking ahead, NextEra aims to sustain top-end adjusted EPS through 2026, with a 14-year track record of meeting or surpassing financial targets. The firm forecasts operating cash flow growth to match or exceed its adjusted EPS growth, with dividends expected to increase ~10% per year until at least 2024. NextEra Energy Partners sold the Texas Pipeline portfolio, which along with its re-powering plans for wind projects, supports a 6% LP distribution growth target. The partnership's adjusted EBITDA was up 13.6% in 2023 to $1.9 billion, with cash available for distribution at $689 million. It anticipates adjusted EBITDA between $1.9 billion and $2.1 billion and cash available for distribution between $730 million and $820 million at the end of 2024.

Ambitious Growth and Strategic Positioning in Renewable Energy

The company is working towards a significant expansion of its renewable energy operations, eyeing an operational target of up to 53 gigawatts by 2026, with plans to include battery storage co-location. This positions the company to meet the growing capacity needs of customers amid a shift towards electrification. Renewable energy, currently at 16% of the US generating mix, is projected to double by 2030, and the company aims to be at the forefront of this transition.

Optimizing Operations and Capitalizing on Transmission Business Growth

Key to the company's growth is its competitive transmission business, which achieved record levels in 2023 and is expected to continue thriving. The company anticipates deploying $1.9 billion of capital through 2027 to complete projects that could enable up to 12 gigawatts of new renewables, reflecting confidence in its ability to offer cost-effective solutions to a market demanding more transmission infrastructure.

Maintaining Steady Distribution Growth Without New Acquisitions

Following the Texas Pipeline portfolio sale, the company has resolved key financial obligations, which underpins its ability to achieve a 6% growth target in limited partner (LP) distributions per unit through at least 2026 without the need for new acquisitions in 2024.

Commitment to Long-term Value and Adaptability

The company emphasizes its long-running track record of execution and customer service, focusing on delivering long-term shareholder value. It is aiming to integrate energy storage with existing assets and is exploring options to address future equity buyout obligations, underscoring its commitment to financial prudence and adaptability.

Expansive Development Pipeline Showcases Market Leadership

The company boasts an impressive development pipeline, with approximately 150 gigawatts allocated to new renewable and storage projects, reinforcing its claim as one of the world's most comprehensive renewable energy businesses.

Solid Financial Performance and Strong Projections

FPL, one of the company's entities, reported an adjusted earnings per share increase of $0.22 in 2023, supported by 12.5% regulatory capital employed growth. With capital investments reaching $9.4 billion for the year, FPL is projected to report a regulatory Return on Equity (ROE) of approximately 11.8%. The company also reported an impressive 12.9% year-over-year growth in Energy Resources' full year adjusted earnings, underscoring robust financial health.

Capital Allocation Prioritizing Renewables and Transmission

The company's capital allocation strategy currently prioritizes investments in renewable energy and transmission projects, leveraging various funding avenues such as tax equity, project finance, and transferability provisions, to sustain its growth and align with long-term financial goals.

Proactive Approach to Growth Opportunities

Continuing to explore the development rights acquisition market, the company remains opportunistic to bolster its project portfolio. Emphasizing greenfield projects, the company plans for sustained growth over the next decade, reflecting confidence in its developmental strategy and competitive advantages.

Navigating Project Backlog Dynamics

While the company reported strong backlog additions, it also recognizes the ebb and flow inherent to project development, including dealing with project-specific challenges like higher interconnection costs. The focus remains on making shareholder-positive decisions and maintaining the integrity of the 20-plus gigawatt portfolio.

Outlook and Forward-Looking Financial Plans

NextEra Energy Partners' high-yield note issuance bolsters its financial capabilities, with adjusted EBITDA reaching $1.9 billion and cash available for distribution at $689 million for 2023. Looking ahead, the company sets an EBITDA expectation range between $1.9 billion and $2.1 billion and cash distribution between $730 million and $820 million for year-end 2024.

Strategic Development and Funding in Response to Market Demands

The company is adapting to meet market demands for tax credits and transferability, focusing on project finance and tax equity. It seeks to optimize its strategies to maintain strong demand for its tax credits while managing capital allocations across all business endeavors.

Assurances Against Policy Reversals and Strengthening Bipartisan Support

Addressing concerns regarding policy changes, the company expresses confidence in the stability of tax credits and bipartisan support resulting from the economic impact of its renewable projects. This stability supports the company's commitment to providing economic benefits to communities regardless of political dynamics.

Harnessing AI and Data for Energy Solutions

The growth in areas such as generative AI has led to distinctive energy demands, and the company is working closely with technology companies to ensure timely, on-budget project delivery. This cooperative approach caters to the critical energy needs of these companies, positioning the company to respond effectively to these emerging market opportunities.

Innovation and Advocacy in the Hydrogen Economy

Although the company acknowledges the complexities of advancing hydrogen projects, it remains proactive in advocating for policies conducive to a hydrogen economy—signifying a long-term commitment to decarbonization initiatives that are likely to shape future infrastructure investments.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the NextEra Energy, Inc. and NextEra Energy Partners, LP Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Kristin Rose, Director of Investor Relations. Please go ahead.

[Kristin Rose, executive]

Thank you, Andrea. Good morning, everyone, and thank you for joining our fourth quarter and full year 2023 combined financial results conference call for NextEra Energy and NextEra Energy Partners.

With me this morning are John Ketchum, Chairman, President and Chief Executive Officer of NextEra Energy; Kirk Crews, Executive Vice President and Chief Financial Officer of NextEra Energy; Rebecca Kujawa, President and Chief Executive Officer of NextEra Energy Resources; and Mark Hickson, Executive Vice President of NextEra Energy, all of whom are also officers of NextEra Energy Partners; as well as Armando Pimentel, President and Chief Executive Officer of Florida Power & Light Company. John will provide some opening remarks, and we'll then turn the call over to Kirk for a review of our fourth quarter and full year results. Our executive team will then be available to answer your questions.

We will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release, in the comments made during this conference call and the Risk Factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites, www.nexteraenergy.com and www.nexteraenergypartners.com. We do not undertake any duty to update any forward-looking statements.

Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliation of historical non-GAAP measures to the closest GAAP financial measure.

With that, I will turn the call over to John.

[John Ketchum, executive]

Thanks, Kristin, and good morning.

NextEra Energy had strong operational and financial performance at both FPL and Energy Resources in 2023. NextEra Energy delivered full year adjusted earnings per share of $3.17, up over 9% from 2022, exceeding the high end of our adjusted EPS expectations range.

From solar supply chain challenges to higher inflation and interest rates, NextEra Energy navigated through a challenging environment the last 2 years, delivering compound annual adjusted EPS growth of roughly 11.5% since 2021. These were unprecedented events for our sector and clear headwinds for renewables, but disruption often presents opportunity.

At NextEra Energy, we relied on our 25 years of renewables experience and our culture of execution to navigate this tough environment. On the strengths of our scale and competitive advantages, our world-class supply chain capabilities, customer relationships, access to and cost of capital advantages, the strength of our balance sheet, our data-driven development playbook and our team, just to name a few, we successfully managed through the disruption. Our scale and competitive advantages served as key differentiators and allowed us to continue to deliver for our customers and extend our long track record of earnings and dividend growth.

Over the past 10 years, we have delivered compound annual growth and adjusted EPS of roughly 10%, which is the highest among all top 10 power companies. Over that same period, the remaining top 10 power companies have achieved, on average, compound annual growth and adjusted EPS of roughly 2%.

Notwithstanding the strong adjusted EPS results, we recognize and are disappointed by the underperformance in the share price. And as we start 2024, we remain steadfast in our continued focus on execution and creating long-term value for shareholders.

We believe the disruption over the last 2 years has made NextEra Energy an even stronger company. Our business model is more resilient, our development platform is even more advanced and our supply chain is more diversified than it has ever been. Bottom line, we believe NextEra Energy is well positioned headed into 2024.

And there is good reason for optimism at NextEra Energy. Although nobody can predict with certainty what 2024 will bring, inflation and interest rates have declined from their peak, and NextEra Energy has taken steps to mitigate its exposure to interest rate volatility through its interest rate hedging program. The Commerce Department has provided the final determination around circumvention, providing solar suppliers with more certainty around the rules and expectations of importing solar equipment.

New solar supply chains have been established in the U.S. and internationally, leading to lower solar panel prices, and we see the continued longer-term push towards EVs as being incrementally positive for continued reductions in battery prices.

Solar panel and battery prices have already declined by roughly 25% from their peak over the last 24 months heading into 2024. We have proactively procured critical electrical equipment to complete our renewable projects, securing enough transformers and breakers to cover our expected build through 2027. And due to our scale and construction partnerships, we have not experienced any labor shortages impacting project time lines.

Ultimately, all these tailwinds are great for customers and, we believe, should drive greater renewables demand in 2024 and beyond, all on the heels of consecutive record years for new renewables originations at Energy Resources in 2022 and 2023, totaling over 17 gigawatts.

NextEra Energy offers a unique value proposition with 2 strong businesses that we believe are strategically positioned with outstanding prospects for future growth. FPL, which represents more than 2/3 of our company, is the nation's largest electric utility and continues to deliver what we believe is the best customer value proposition in one of the fastest-growing states in the U.S.

Energy Resources, the world's renewables leader, has differentiated itself in an industry in which scale, experience and being well capitalized matters. At NextEra Energy, the plan is simple. Our 2 businesses are deploying capital in renewables and transmission for the benefit of customers, providing visible growth opportunities for shareholders.

At FPL, we identify investment opportunities that drive value for customers and support Florida's growing economy while keeping bills approximately 30% lower than the national average. We focus on running the business efficiently and continue to lead the industry with the lowest nonfuel O&M per megawatt hour of any large utility in the nation.

Our emphasis on modernizing FPL's generation fleet to improve efficiency and reduce fuel costs has saved customers over $15 billion since 2001. We continued this trend in 2023 by placing into service approximately 1,200 megawatts of cost-effective solar and expect to add roughly 4,800 megawatts over the current rate agreement. And by 2032, we expect to increase FPL Solar from 5% of our total generation today to roughly 35% by adding over 15,000 incremental megawatts.

We are also continuing to invest in FPL's grid to make it stronger and more resilient for our customers. Almost all of FPL's transmission system has been hardened with concrete or steel towers or poles, and we continue to invest in undergrounding our distribution system to further enhance reliability and resiliency for customers.

The capital plan of the current rate agreement of $32 billion to $34 billion extends our customer value proposition and provides clear visibility for growth through 2025. Beyond 2025, we continue to believe FPL is strategically well positioned, as Florida remains one of the fastest-growing states in the U.S., with a population growth that is expected to roughly double the national average through 2030.

Florida's economy is also growing and is now the 14th largest in the world if Florida were a country. FPL is responsible for keeping the lights on for approximately $2 billion per day of Florida's GDP.

These long-term growth prospects, coupled with investment opportunities in renewables and transmission and distribution infrastructure, enhance our best-in-class customer value proposition and support our belief that FPL is the highest-quality rate-regulated utility in the country.

Energy Resources' deep expertise in renewables and transmission serves as a key differentiator with customers. As a result of our data-driven development playbook, Energy Resources had a record year of new renewables and storage origination, adding approximately 9,000 megawatts to our backlog. Driven in part by the roughly 5,600 megawatts placed in service in 2023, Energy Resources grew adjusted earnings almost 13% versus 2022.

Energy Resources continues to see strong demand and is well positioned to realize its development expectations over the 4-year period ending 2026. Assuming we achieve the midpoint of the range, Energy Resources will be operating a roughly 63-gigawatt renewable portfolio by the end of 2026. That would be larger than the installed renewables capacity of all but 9 countries.

Energy Resources also is extending its excellent track record of optimizing our existing footprint to create additional shareholder value. To date, we have repowered 6 gigawatts of our existing 24-gigawatt wind operating fleet, investing roughly 50% to 80% of the cost of a new build and starting a new 10 years of production tax credits, resulting in attractive returns for shareholders. By 2026, Energy Resources wind footprint could be roughly 32 gigawatts. And with over a decade to potentially qualify for repowering, it represents a great opportunity set.

We believe there are multiple opportunities to drive value from the existing footprint: multiple wind repowers; adding solar underneath existing wind; and co-locating battery storage with existing wind and solar, and we have dedicated teams leveraging our development playbook to optimize our existing and future fleet. We can maximize existing land, permits, interconnection capacity and operations to provide enhanced value to customers and shareholders.

By 2026, Energy Resources could operate up to 53 gigawatts of generation, with the potential to co-locate battery storage, which represents a great long-term opportunity, especially considering the likely future capacity needs of customers.

Throughout 2023, Energy Resources also continued to build what we believe is the nation's leading competitive transmission business. As growth in renewables occurs throughout the U.S., there is a growing imperative to build additional or upgrade existing transmission.

2023 was a record year for our competitive transmission business. NextEra Energy Transmission was awarded projects to construct transmission in PJM, CAISO and SPP that would roughly double the investments made in the existing business. We anticipate deploying approximately $1.9 billion of capital through 2027 to complete these transmission projects, which we estimate could enable up to 12 gigawatts of new renewables.

Beyond 2026, Energy Resources is strategically positioned to benefit significantly from the irreversible shift towards electrification. With renewables only comprising roughly 16% of the U.S.-generating mix, Energy Resources is just getting started.

Renewable penetration is expected to double to over 30% by 2030, and Energy Resources is ready. We have a substantial development pipeline, including roughly 150 gigawatts of interconnection queue positions for new renewables and storage projects. We believe Energy Resources has the most comprehensive renewable energy business in the world and is better positioned than ever to capitalize on long-term growth prospects.

FPL and Energy Resources individually have executed well, delivering value for our customers. Both businesses complement each other, push one another to be better and together create scale and foster innovation. We have one of the sector's strongest balance sheets and constructed and placed into service roughly 6,800 megawatts of new renewables and storage projects in 2023.

To put that into context, 6,800 megawatts of installed U.S. renewable generating capacity is enough on its own to rank as the 4th largest U.S. renewable energy company and the 14th largest utility.

Turning to NextEra Energy Partners. We continue to focus on executing against the partnership's transition plans and delivering an LP distribution growth target of 6% through at least 2026. Last September, we made the tough decision to reduce the target distribution growth rate to 6% when NextEra Energy Partners no longer benefited from a competitive cost of capital.

With a growth rate now comparable to its peers, we are focused on the partnership's cost of capital improving, which is critical for its future success. Towards that end, we are evaluating alternatives to address the remaining convertible equity portfolio financings with equity buyout obligations in 2027 and beyond.

We are executing against the transition plans and with the closing of the Texas Pipeline portfolio sale, the partnership has addressed 2 of the 3 near-term convertible equity portfolio financings. The STX Midstream convertible equity portfolio financing has been extinguished, and we have sufficient proceeds available to complete the NEP Renewables II buyouts that are due in June 2024 and 2025. The third convertible equity portfolio financing associated with the Meade natural gas pipeline assets is expected to be addressed in 2025.

Looking ahead to 2024 and beyond, NextEra Energy Partners does not expect to need an acquisition in 2024 to meet the 6% growth in LP distributions per unit target, and the partnership does not expect to require growth equity until 2027. We are executing against the growth plans and have identified approximately 985 megawatts of wind repowers through 2026, making progress against our expectations.

As we turn the page on 2023 and head into 2024, we are optimistic about the renewable sector, a better opportunity set, about customer demand and about NextEra Energy's future. Demand for renewables has never been stronger, and yet the challenges have never been more complex, making the stakes even higher for customers. Our scale and competitive advantages are enabling us to be the partner of choice with both power and commercial and industrial customers.

On March 14, we will discuss Energy Resources development process in greater detail at our development investor event in Juno Beach and illustrate how our proprietary tools differentiate Energy Resources with customers. And then on June 11, we will hold our NextEra Energy Investor Day in New York to discuss our long-term plans for both Energy Resources and FPL.

Our optimism for NextEra Energy's future flows from the strength of our 2 world-class businesses, FPL and Energy Resources, that leverage our scale and competitive advantages to differentiate themselves as leaders. Our optimism is driven from our proven playbooks of deploying capital in renewables and transmission to create value for customers.

But I am most optimistic because we have spent the last 2 decades building a world-class team at NextEra Energy, and it is by far our greatest competitive strength. Our team lives and breathes a culture of continuous improvement, working together to solve the tough challenges of the day. We drive innovation, relying on data analytics and automation to make better decisions. And we have developed and deployed smart, low-cost clean energy solutions that lead our industry. Most importantly, our team remains hyperfocused on continuing our long track record of execution, serving our customers with excellence and providing long-term value for shareholders.

With that, let me turn it over to Kirk, who will review the 2023 results in more detail.

[Terrell Crews, executive]

Thanks, John.

Let's begin with FPL's detailed results. For the full year 2023, FPL's adjusted earnings per share increased $0.22 versus 2022. FPL's adjusted earnings results exclude the approximately $300 million after-tax gain on the sale of Florida City Gas, which closed on November 30, 2023.

The principal driver of the 2023 full year performance was FPL's regulatory capital employed growth of approximately 12.5%. We continue to expect FPL's average annual growth and regulatory capital employed to be roughly 9% over the 4-year term of our current rate agreement, which runs through 2025.

For the full year 2023, FPL's reported ROE for regulatory purposes will be approximately 11.8%. During the full year 2023, we used approximately $227 million of reserve amortization, leaving FPL with a year-end 2023 balance of roughly $1.2 billion.

FPL's capital expenditures were approximately $2 billion in the fourth quarter, bringing its full year capital investments to a total of roughly $9.4 billion. These capital investments supported the successful commissioning of roughly 1,200 megawatts of solar in 2023, continued hardening of the grid and our efforts to underground our distribution system.

During the fourth quarter of 2023, our 25-megawatt hydrogen pilot at the Okeechobee Clean Energy Center successfully achieved commercial operations. As a reminder, we plan to utilize this facility, together with adjacent solar projects, to create green hydrogen and blend it with natural gas at our Okeechobee plant.

Key indicators show that the Florida economy remains strong, and Florida's population continues to be one of the fastest growing in the country. Florida's economy continues to trend upward, and its GDP is now roughly $1.6 trillion, an increase of 9.3% over last year.

For the fourth quarter of 2023, FPL's retail sales increased 1.6% from the prior year on a weather-normalized basis driven primarily by continued strong customer growth, which increased by nearly 81,000 from the prior year comparable quarter. For the full year 2023, FPL retail sales increased 0.6% from the prior year on a weather-normalized basis, also driven primarily by the strong customer growth in our service territory.

Now let's turn to Energy Resources, which reported full year adjusted earnings growth of approximately 12.9% year-over-year. Contributions from new investments increased by $0.35 per share due to strong growth in our renewables and storage portfolio. Contributions from our existing clean energy assets decreased results by $0.11 per share driven primarily by the impact of weaker wind resource. 2023 was the lowest wind resource on record over the past 30 years.

Our customer supply and trading business increased results by $0.16 per share primarily due to higher margins in our customer-facing businesses. Other decreased results by $0.26 per share year-over-year. This decline reflects higher interest costs of $0.22 per share, of which $0.10 was driven by new borrowing costs to support new investments.

Energy Resources delivered our best year ever for origination, adding approximately 9,000 megawatts of new renewables and battery storage projects to our backlog, which includes approximately 2,060 megawatts since our last call. Our 2023 origination performance reflects continued strong demand from power customers looking for the least-cost alternative to serve load and to replace uneconomic generation and commercial and industrial customers looking to help decarbonize their operation or meet their data center and AI demand.

Our renewables backlog now stands at more than 20 gigawatts, after taking into account roughly 2,470 megawatts of new projects placed into service since our third quarter call. We believe our 20 gigawatt backlog provides clear visibility into Energy Resources' ability to deliver for shareholders through 2026 and beyond.

Turning now to the consolidated results for NextEra Energy. For the full year, adjusted earnings from our Corporate and Other segment decreased by $0.08 per share year-over-year primarily driven by higher interest costs. We successfully supported the growth in our underlying businesses from our strong operating cash flows, including the sale of tax credits as well as our historical funding sources.

In 2023, we grew cash flow from operations well in excess of our adjusted earnings. We transferred approximately $400 million of tax credits, establishing relationships with numerous counterparties. We believe this will prove to be a competitive advantage as buyers look first to NextEra Energy given its size, experience and the overall quality of its tax credit program.

Overall, our funding plans for 2024 through 2026 remain consistent with the information we shared on the third quarter earnings call. We continue to believe NextEra Energy is well positioned to manage the interest rate environment. While the recent decline in interest rates is encouraging, we remain committed to managing the business to deliver value for customers and shareholders.

Overall, we believe we are well positioned with $18.5 billion of interest rate swaps, and we will continue to closely monitor the interest rate environment, as declines in rates certainly represent a tailwind for our sector and customers.

Our long-term financial expectations remain unchanged. We will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted EPS expectation ranges in 2024, 2025 and 2026. For the last 14 consecutive years, NextEra Energy has met or exceeded its financial expectation, which is a record we are proud of.

From 2021 to 2026, we continue to expect that our average annual growth in operating cash flow will be at or above our adjusted EPS compound annual growth range. And we also continue to expect to grow our dividends per share at roughly 10% per year through at least 2024 off a 2022 base. As always, our expectations assume are caveats.

Now let's turn to NextEra Energy Partners. In terms of the transition plan, NextEra Energy Partners closed the sale of the Texas Pipeline portfolio in late December, providing net proceeds of approximately $1.4 billion. NextEra Energy Partners expects to complete the NEP Renewables II buyout of roughly $190 million and $950 million on their stated minimum buyout date of June 2024 and 2025, respectively, as the partnerships continue to benefit from the low cash coupon through 2025.

In terms of NextEra Energy Partners' growth plan, as a reminder, it involves organic growth, specifically repowerings of approximately 1.3 gigawatts of wind projects through 2026 as well as acquiring assets at attractive yields. Today, we are announcing plans to repower an additional approximately 245 megawatts of wind facilities through 2026. The partnership has now announced roughly 985 megawatts of repowers with strong cash available for distribution yields.

While the partnership does not expect to need an acquisition in 2024, the LP distribution growth target of 6% is supported in part with roughly 175 megawatts of wind repowers, which are expected to generate attractive cash available for distribution yield.

Finally, we were pleased with the high-yield note issuance of $750 million, which was completed during the fourth quarter of 2023. This opportunistic refinancing allowed the partnership to pay off its corporate revolver in mid-December.

Let me now turn to the financial results for NextEra Energy Partners. Fourth quarter adjusted EBITDA was $454 million, and cash available for distribution was $86 million. Adjusted EBITDA growth versus the prior year comparable quarter was primarily due to new asset additions and the incentive distributions right fee suspension, while cash available for distribution was also impacted by incremental debt service.

For the full year 2023, adjusted EBITDA was approximately $1.9 billion, up 13.6% year-over-year, and was primarily driven by the contribution from new projects acquired in late 2022 and during 2023 and the incentive distribution right fee suspension.

New investments added approximately $228 million, and the incentive distribution right fee suspension added approximately $113 million of adjusted EBITDA year-over-year. This growth was partially offset by a decline from existing projects driven primarily by weaker wind resource.

Cash available for distribution was $689 million for the full year and primarily driven by contributions from new projects of approximately $42 million and the incentive distribution right fee suspension of $113 million, while being partially offset by the weaker wind resource.

Yesterday, the NextEra Energy Partners Board declared a quarterly distribution of $0.88 per common unit or $3.52 per unit on an annualized basis, which reflects an annualized increase of 6% from its third quarter 2023 distribution per unit. The partnership grew its LP distributions per unit by more than 8% year-over-year.

From an updated base of our fourth quarter 2023 distribution per common unit at an annualized rate of $3.52, we continue to see 5% to 8% growth per year in LP distributions per unit, with a current target of 6% growth per year as being a reasonable range of expectations through at least 2026.

We continue to expect the partnership's payout ratio to be in the mid-90s through 2026. We expect the annualized rate of the fourth quarter 2024 distribution that is payable in February 2025 to be $3.73 per common unit.

NextEra Energy Partners is introducing December 31, 2024, run rate expectation for adjusted EBITDA in a range of $1.9 billion to $2.1 billion and cash available for distribution in the range of $730 million to $820 million, reflecting calendar year 2025 expectations for the forecasted portfolio at year-end 2024. As a reminder, our expectations are subject to our caveat.

That concludes our prepared remarks. And with that, we will open the line for questions.

[Operator]

[Operator Instructions] And our first question will come from Shar Pourreza of Guggenheim Partners.

[Shahriar Pourreza, analyst]

Just starting on NEP, if it's okay. Just on the higher repowering opportunities you announced, I guess, how are you sort of thinking about funding it? And really more importantly, is there any specific status on the money pool that could be looking to buy in directly into projects, whether it's drop downs or organic growth at the NEP level? Could these sort of equity investors help solve the '26 growth in financing issues? And I guess, when do you plan to update on that?

[Terrell Crews, executive]

Sure. So with respect to repowering, Shar, we look at that as -- on the project level. There's really 2 options there. We can look at it from a project financing standpoint and pair that with transferability or we can look at it as tax equity. So we will look at both of those options and decide that at the time of the repowerings.

With respect to your second question, there's -- we're looking at all options right now. As John said in the prepared remarks, we are exploring a number of opportunities and alternatives for addressing the convertible equity portfolio financings that are coming due in 2027 and beyond. There's really not a time frame in terms of the update now, but we are looking at all options in -- with the goal of really maximizing unitholder value.

[John Ketchum, executive]

And Shar, this is John. Just adding on to that. Again, on the repowers, just like we do at NEE, I mean, just think about it as tax equity and project finance. And again, the private capital raises provide us with a number of options, but we're looking at a lot of different alternatives. That would be one of them.

[Shahriar Pourreza, analyst]

Okay. Perfect. And then lastly, John, we haven't had any updates from the FEC. Has anything sort of been communicated to you regarding sort of the investigation? How quickly you would look to settle, assuming they take up the case?

And as we're kind of thinking about the process, right, it's confidential. So curious on how you're going to update investors. Would we see a press release or an 8-K from you confirming the FEC process and that you'll update investors in the future on next steps? Or could we see a single communication on the FEC pickup and a concurrent settlement, let's say?

I'm just trying to assess how long this could be an overhang, assuming the case moves forward and whether you've already laid the groundwork for all options to get this kind of pass this quick when a ruling comes out.

[John Ketchum, executive]

Yes. Thanks for the question, Shar. So let me just take those in order. First of all, there's no update. We have not been contacted by the FEC. And I think, just to remind investors of the timing, first of all, these are just guidelines I'm going to give you. I mean, there is no prescribed time line in terms of the FEC providing a response to us.

But as you may recall, we originally received the FEC complaint, I guess, is what you would call it, that had been filed by a group called CREW back in November of 2022. And if you follow the historical precedent of the FEC, it's usually 12 to 18 months after you first are notified of a claim having been filed, that you would learn whether or not the FEC decides to find that there's reason to believe that they ought to conduct an investigation. We have not heard anything from the FEC in that regard.

The second thing I would remind investors of is this is not material. Again, these were 5 allegations, totaling political contributions of roughly $1.3 million to $1.5 million. So we're talking about smaller dollar amounts. And how and when we would update investors would depend on what exactly we hear from the FEC.

[Operator]

The next question comes from Steve Fleishman of Wolfe Research.

[Steven Fleishman, analyst]

I guess, a couple of big-picture questions. First, obviously, a lot more focus in the elections now as we're in '24. And curious your thoughts in the event of Republican trifecta, so to speak, just how you're thinking about the sustainability of IRA provisions.

[John Ketchum, executive]

Sure, Steve. Let me go ahead and take that. This is John. First of all, in the 21 years I've been at the company, as we've changed administrations and we've seen changes in Congress, we've never seen a change or appeal of tax credits, no matter what form they've taken. IRA is the form we're talking about here. So that's the first point I would make.

Second, it's really hard to overturn existing law. I think ObamaCare is a very good example of that. It's just very difficult, no matter what the political winds are.

The third point I would make is that the IRA benefits both sides of the aisle. It certainly is advantageous for obvious reasons for Democrats, but it also has a big benefit to Republicans because if you think about where the investments are being made around IRA and where a lot of the benefit of IRA is flowing, it's flowing to Republican states, and it's flowing to parts of those states that are really difficult to stimulate economically. And we're talking about rural communities in these states.

And so when we come in and we build a wind project, we build a solar project, we build a battery storage project, it's a complete turnaround for these communities. We're providing an economic base in the form of jobs. We're providing an economic base in the form of spending that occurs in that community. We're providing an economic base in the form of property taxes and sales tax revenues.

These are 180s for these rural communities and make a huge difference on their viability going forward. Just think about hospitals and staffing doctors at county hospitals or paying teacher salaries. I mean, the property tax revenues have significant benefits. And so for those reasons, we've always been able to work with both sides of the aisle. So see any repeal of IRA as being unlikely.

[Steven Fleishman, analyst]

Okay. And I guess, 2 other big-picture questions on the renewables business. Just any kind of new thoughts, color on your data center strategy and also your thoughts on hydrogen after the -- based on the proposed rules that came out?

[Rebecca Kujawa, executive]

Steve, it's Rebecca. First on the data centers, clearly, there's an enormous amount of demand being driven across the U.S. economy by the growth in data centers driven by a lot of things, of course, but specifically generative AI. And that growth is pretty explosive at this point.

And I think the characteristics of that demand are a little bit unique and driving different ways in approaching the marketplace for a number of these technology companies, where it is imperative that these projects get built on time, on budget and produce the energy that they're expecting because the opportunity cost for these customers is so significant if they aren't able to power them and, of course, meet the commitments that they've made to their own stakeholders.

So we're seeing those relationships expand and also deepen, where it's not just signing the megawatts of the day, but also working with them collaboratively over a long period of time to ensure that they get the energy and capacity that they need where they need it to support their projects.

Just alone in our backlog, not even counting what we have installed, we have over 3 gigawatts of projects that we're building in the coming years for these customers. And I do believe that's the tip of the iceberg and, again, not even talking about what we already have installed.

So it's pretty exciting, and our team is very ingrained in working with these customers, and we're really excited about the years ahead.

And then turning to hydrogen, obviously, the guidance that first came out, the draft guidance in December is really steering towards hydrogen projects that will be essentially from day 1 needing to match on an hourly basis. And that, of course, increases the ultimate cost of hydrogen.

And unfortunately, I think if it stands as currently drafted would limit to an extent how much will be built for the U.S. market. We're obviously advocating for more of a relaxed matching requirements and more of an annual match for a period of time and then transitioning to hourly over time, so that you can kick-start a hydrogen market.

And hopefully, the administration will hear that and know that having a kick-started hydrogen economy will certainly further their ambitious goals, which, of course, we are very excited about meeting to see the full decarbonization of the U.S. economy over time.

So more work to be done, and we're excited to pursue the marketplace. Regardless, these are probably end-of-the-decade-type projects. So more of an investment in the near term for opportunities in the long term.

[Operator]

The next question comes from David Arcaro of Morgan Stanley.

[David Arcaro, analyst]

Maybe on the renewables demand side of things, could you give a little bit more detail on the origination trends that you're seeing? I guess, it looked like solar and storage quite strong in the quarter, but then wind a little bit lower in terms of the new bookings added. Maybe what's your latest confidence in achieving those '25 and '26 targets, particularly on the wind side of the business?

[Rebecca Kujawa, executive]

Dave, it's Rebecca. I'll take a first cut at that. We're obviously excited about the origination. As John and Kirk have highlighted, originating 17 gigawatts over the last 2 years and both years serving as a record. So this year, topping last year's record is very exciting.

We also, of course, see the mix being more focused towards solar and storage. And as I've commented in the past, I think some of this is an aftereffect of the strong demand that we saw going into 2020, when we and others thought that the production tax credit would ultimately phase down and then ultimately go to 0 over a period of time. So there was a pull forward of demand.

And then the second dynamic that I think has impacted the short term is that the solar production tax credit clearly stimulated near-term demand and deployments for our customers. And obviously, we're very excited about that.

Storage is growing at least as well as we thought, perhaps exceeding even our expectations in terms of adoption, not just in the Western markets, but now really spreading in a very constructive way through the Midwest. And we've got, as John highlighted in the prepared remarks, a really advantaged position to be able to respond quickly to the demand characteristics that we're seeing where our customers need capacity quickly, where they hadn't anticipated the demand that they would see in their underlying business. And so getting to market quickly is very much a premium and a priority, and we're there to serve them well.

And that storage market, as we've talked about from a returns characteristic standpoint, is an awful lot like wind and is certainly complex to deliver the value that our customers are looking for in the various streams.

I'd say the other part that is at least as strong as we anticipated when we laid out the expectations is repowering. And we're excited about the economics of that, and economics specifically in context to the value that it brings to our customers, bringing some incremental generation and extending the life of these projects, often extending the contracts with our customers at the same time that we do repowering.

So overall, with all those comments in context, I feel really good about meeting our development expectations in aggregate. We'll continue to look at the mix in individual technologies over time. But at this point, we're obviously leaving the ranges as we've had them now for a couple of years, in part to reflect what I'm sure you recall, wind is a very short development cycle, maybe not the actual laying the groundwork to be able to build a project.

But when we enter into a contract and acquire the turbines and put it into service can be as short as 9 months. So there's still a lot of time left between now and the end of '26 to add more wind to the -- to not only the backlog but ultimately commission.

And when I look at the forward couple of quarters, there are a couple of chunky opportunities our teams are working on, and I feel good about bringing them -- some of those to fruition.

[David Arcaro, analyst]

Excellent. Very helpful. And then maybe secondarily, just -- it sounds like the backdrop has gotten more challenging for small developers in the renewable space. Wondering if you're seeing opportunities for market share gain as a result. And potentially, any development pipelines to pick up from developers that might be struggling right now?

[Rebecca Kujawa, executive]

Sure. We always are out in the development rights acquisition market. In the recent couple of years, we've really prioritized our greenfield portfolio in part because of our ability to work so closely with our customers and make sure that we're building the projects over the long term where they need them. But we will always be opportunistic in the development project market to be selective and create opportunities where it may be particularly attractive.

The dynamic from a couple of years ago where a number of development portfolios were acquired by folks looking to, I would say, compete with us, but certainly have a bigger presence on the development side, we haven't seen those holistically come back to market. I think that may change over time.

I know the private equity cycle of wanting to be able to turn over capital quickly and realize isn't necessarily completely aligned with the development cycle where sometimes things are a little bit faster, a little bit slower than you anticipated, and you need to be patient. So I'm optimistic there'll be opportunities.

But most importantly, and this is one of the things that we'll focus on in March, is we want to keep our fate -- our development opportunities in our own hands. And I am super excited about what our team is working on from a greenfield development standpoint and the competitive advantages that we're investing in to make sure that we can serve our customers well, not just in the next 2 or 3 years as we often talk about for you -- with you all, but the next 5, 7, 10 years plus down the road.

[Operator]

The next question comes from Carly Davenport of Goldman Sachs.

[Carly Davenport, analyst]

Wanted to just ask about transmission. You highlighted the $1.9 billion of capital through 2017 at NEE. And as we look at the EBITDA contribution at NEER for 2024, that piece is moving higher as well. So could you just talk a bit about what sort of growth you could see at NEE over the next several years and then what that EBITDA contribution could be over time?

[Rebecca Kujawa, executive]

Carly, so the -- from the pipeline perspective, as no doubt you appreciate, transmission opportunities take a couple of years to come to fruition. So we're thrilled with the awards that the team has been able to secure in the last year.

On one part of it, building on investments that we already have, so expansion opportunities that are significantly enabling new renewables development headed into the California market; and then other parts of the U.S., competitive opportunities that we won through competitive processes.

In terms of timing, as we highlighted in the prepared remarks, the in-service dates are out to 2027. So as we invest capital, obviously, that will start to become more of a material contribution over time. And we'll give more color as we get into the investor conference, as we typically do, to give more of a breakdown by business and what those contributions will look like over time.

But the momentum is terrific. And as we've highlighted, everybody understands, maybe not to the extent that we think it's going to happen. But in order to unlock the renewables opportunity that we and others see across the United States, transmission needs to be built. And we stand ready to be a part of the solution wherever we can be and bring cost-effective solutions to customers.

[Carly Davenport, analyst]

Great. And then maybe just one more on the financing side for this year. Just based on what you've seen so far in the markets, how are you thinking about the mix of the different avenues that you can use to monetize tax credits, whether through tax equity or transferability? How do we think about the sort of magnitude of each of those in your financing plans for '24?

[Terrell Crews, executive]

Yes. Carly, the -- this is Kirk. The financing plan, as we shared in our prepared remarks, is consistent with the information we shared on the third quarter call. And as we approach those options, it's -- we will use -- the historical approach is project finance and tax equity. And -- but we're also very encouraged by what we're seeing with the transferability market. We are having really good progress with -- in those conversations, we're seeing really good demand for the NextEra Energy tax credit.

And ultimately, we look at all those as options, and we'll optimize between project finance and transferability and tax equity. And we'll use those within the ranges that we shared in the '24 to '26 funding plan that we provided between those -- between the disclosure that we provided. But we are seeing really, really good demand for the credits and expect to continue to utilize transferability as an option going forward.

[Operator]

The next question comes from Jeremy Tonet of JPMorgan.

[Jeremy Tonet, analyst]

Just wanted to build off that a little bit, what you were talking about before. How do you balance, I guess, looking forward, the wealth of growth opportunities and the associated funding needs relative to dividend growth?

Do you look at industry trends for dividend growth at all and how that might change as utility CapEx increases? And just a final point there, just wondering how the E&P business competes for capital against everything else that you have in a lower gas price environment.

[Terrell Crews, executive]

Sure. So we -- when we look at capital allocation and you look at -- we shared on the third quarter call the returns that we see within the renewable business. And as we shared then at Energy Resources within -- for wind, we see returns in the low 20s on a levered ROE basis. In solar, we see returns in the mid-teens. And then storage is also in the low 20s.

And so it's great returns. And we look to get capital allocated to the renewable business. And that -- as John discussed in the prepared remarks, we are allocating capital across both businesses in renewables and transmission. And that is -- that tends -- that is the priority with the way that we allocate capital.

And then in terms of the funding of that, again, it's the way that we've traditionally funded the business. It's tax equity, it's project finance, and then we also use the transferability provisions.

[Jeremy Tonet, analyst]

Got it. And then maybe just pivoting a little bit towards the backlog, a lot of additions in the quarter, but there was a little bit that fell out, I think, 3 50. And there was a little bit more in the post-2026 time frame that's in the backlog. So just wondering if you could talk a bit more on kind of some of the drivers, the puts and takes within the portfolio addition composition over time.

[Rebecca Kujawa, executive]

Sure. I'll take that. In terms of the -- obviously, the backlog additions are quite strong, and we're thrilled about that. And for this quarter, in terms of the removal that we had, it's really project specific items.

In one part, it's really related to higher interconnection costs for a particular project where we need to go back and do a little bit more work. Very likely, these project megawatts will come back. In the backlog, they're good projects. But in the near term, we're removing them while we work through the issues.

We -- I think it's important to keep in mind that as we add something to the backlog, it's tremendous visibility. And we're really excited about moving forward with the projects based on what we know at the time.

But this is still a development business, and there are things that you have to work through before you commit significant capital to a project. And occasionally, some of those things that we work through are better. Sometimes, they're a little bit worse. And we need to make the decisions that are ultimately right for our shareholders at the time that we need to make them.

So in context of a 20-plus gigawatt portfolio, I think it's de minimis for what is kind of the normal run rate for development type issues. And fortunately, we've worked through the issues that we talked about over the last 2 years around antidumping countervailing duties and the significant changes in the marketplace related to the inflationary pressures and changes in the interest rates.

So at this point, I think we're in kind of like normal development. Every once in a while, there's something that changes our view on a specific project. And we're going to do the right thing from a shareholder perspective and only commit capital where it makes sense.

[Operator]

This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation, and you may now disconnect.