The selective growth strategic pillar is the guiding principle behind EDPR’s investment selection process, it ensures that the projects that are finally built have the best fit with the Company’s low risk profile at superior profitability. This strategy can be seen in the 2014-17 Business Plan growth options, as projects have been selected according to two key guidelines:
- Low risk profile – New capacity benefits from long-term PPAs already awarded or under stable regulatory frameworks. This guarantees high visibility of the project’s future cash-flows, reducing risk and locking-in project profitability.
- High operational performance – The projects selected exhibit strong operating metrics, namely above portfolio average load factors. This improves project competitiveness and drives higher profitability.
EDPR is well on track to deliver on its business plan target growth of +2 GW (>500 MW/year). EDPR’s Extensive pipeline has been an important contributing factor to the successful execution of this strategy. The availability of multiple projects coupled with strong development expertise guarantees that only the best, fully optimized, projects are finally selected for investment.
60% GROWTH FROM US; DRIVEN BY PPAS ALREADY SIGNED
The United States is EDPR main growth driver for the 2014-17 Business Plan timeframe. The PTC tax benefit scheme, strong demand for long-term PPAs from wind energy projects, combined with EDPR’s deep portfolio of projects in this market support this solid growth opportunity. Additionally, self-funding is available through tax equity partnerships with the possibility of asset rotation transactions as well, given the strong interest from infrastructure and pension funds for equity stakes.
The December 2015 extension of the Production Tax Credit, that includes a gradual phase down of the PTC value for projects that start construction before 2020, provides further long-term visibility and an improved environment for the development of new wind energy projects. This extension provides visibility to US growth beyond the 2014-17 timeframe, further strengthens the strong fundamental of the US wind market, and support EDPR’s choice to shift growth to the US.
Project economics on all of the new investments in the US are strong, with average load factors of about 43%, earning average PPA prices in the first year of $48/MWh, leading to double-digit IRR percentages.
20% GROWTH FROM EUROPE, FOCUSING ON LOW RISK FRAMEWORKS
Certain European markets continue to provide good growth opportunities supported by regulatory frameworks that provide a low risk environment.
France’s existing feed-in tariff regime provides a stable growth opportunity in Europe. For the 2014-17 Business Plan EDPR targets additions of 60-70 MW through pipeline development, having already installed 42 MW by December 2015. In Italy, EDPR has installed the 30 MW awarded in 2013, and intends to participate in future energy auctions to generate new possible additions. In Poland, EDPR has already installed 99 MW in 2014 and 2015 under the current Green Certificate regime, whilst further growth remains contingent to the approval of a new energy law, expected to be based in energy auctions, where EDPR maintains competitive projects in pipeline. Finally, in Portugal, the total capacity awarded back in 2006 to the ENEOP consortium has been fully installed, the consequent asset splitting executed, and EDPR now fully consolidates 613 MW.
20% FROM SELECTED EMERGING MARKETS, IN PROJECTS WITH LONG-TERM PPAS
In Brazil, EDPR will install in 2015-17 the projects with PPA awarded in 2011 and 2013 for a total 236 MW, thus representing a significant increase in capacity from current portfolio of 84 MW.
In 2014 EDPR has entered the Mexican energy market signing a long-term electricity supply agreement, for the energy of a 200 MW wind farm to be installed in 2016, representing a sizeable entry into a low risk and attractive market. Mexico is as a country with great potential for wind energy and this entry can provide a solid platform for further growth in this market.
Additionally, EDPR is to remain actively prospecting opportunities in new markets with strong fundamentals, namely high growth of electricity demand, robust renewable resources and availability of long-term energy supply agreements awarded through competitive schemes.
+1.5 GW FOR US GROWTH UNDER PPA
Power Purchase Agreements are a fundamental tool to accomplish EDPR low risk approach in the US market. They ensure that a project’s energy is sold at a pre-determined price for long time period, generally between 15-20 years. This shields EDPR from any volatility in energy market price, locking-in project profitability.
Since 2013 EDPR has signed 1.8 GW in long-term sale agreements providing full visibility to its growth target in US for 2014-17 and to the profitability of our existing fleet with 0.3 GW of new PPAs for operational projects.
During 2015 EDPR successfully signed two additional PPA for 200 MW of new capacity, relating to wind farms in Texas and Ohio, to be installed in 2016. These two agreements that were signed with commercial and industrial corporations, one of which Amazon Web Services Inc., are a clear sign of the growing demand for green affordable energy from corporate players. Previously the demand for PPAs came only from traditional utilities, however recently the direct procurement from corporations has increased substantially, adding new demand for EDPR US wind and solar projects.
These long term sale agreements demonstrate not just EDPR’s skill in closing commercial deals but foremost the company’s strong ability to position effectively a pipeline of quality projects, in suitable locations and stages of development as a key success factor to capture growth opportunities on-time.