Pattern sees 'froth' in US RE market

The rise of listed US renewables yieldcos – and the resulting demand for wind and solar projects – means that Pattern Energy will need to rely more heavily its own development pipeline in the near term, says chief executive Mike Garland.

As a yieldco, Pattern’s model is centred on an ever-expanding operating portfolio, so that it can continually grow its dividend. In order to do so, Pattern has told investors it will look to projects owned by parent Pattern Development over which it has Right of First Offer, as well as to third-party acquisitions.

Yet the “frothy” market for buying late-stage or operational wind and solar projects – driven in part by the rise of the listed yieldco – leaves that second option looking relatively unattractive at the moment, claims Garland.

“We see most every opportunity that comes to market, and currently we are still shortlisted for some third-party acquisitions,” Garland told analysts on Tuesday.

“However, I would note that it is our opinion that many of the recent assets sold are being sold at relatively high prices given the long-term nature of these projects. It appears many buyers are looking merely at short-term cash flows or accepting aggressive pricing assumptions.”

“We’ve not participated when that happens in the acquisition market,” Garland says, adding that Pattern is “not anticipating a big growth in acquisitions … until the market starts rationalising again”.

The past few months have seen IPOs from three major US-listed renewables yieldcos – NextEra Energy Partners, Abengoa Yield, and SunEdison’s Terraform Power. All intend to hoover up projects in the US and beyond.

“It is anticipated that many more yieldcos will be issued in the coming year,” Garland says.

However, while the rise of the yieldco has made buying projects more expensive, it has also brought welcome investor attention to the sector, Garland notes.

“We are very excited about the depth of the investor market given our continued demand for capital – especially in the coming year – to fund our growth.”

While Pattern Energy will continue to assess acquisition opportunities, the company will be “relying primarily in the next months and year” on buying projects from Pattern Development.

Currently, Pattern Energy has Right of First Offer on 601MW of capacity across five Pattern Development projects, one of them already operational, and all of the remainder due online by 2016.

Garland described Pattern Development’s pipeline as “a robust 3GW of wind and solar projects and some transmission opportunities”, ranging from “early- to late-stage” developments. But he refused to be drawn on how that pipeline might evolve in the years ahead.

Beyond the three countries where it currently owns assets – the US, Canada and Chile – Garland reiterated that Pattern sees Mexico and Japan as two of the most attractive candidates for mid-term expansion.