Pattern eyes up third-party projects

The next handful of years represent a prime opportunity for acquiring wind projects in North America, after which time the market looks to tighten, Mike Garland, chief executive of Pattern Energy, tells Recharge.

Last autumn Pattern Energy Group LP, owned by Riverstone Holdings, raised $352m by splitting itself in two and listing most of its operational wind assets in a new company on the Nasdaq and Toronto Stock Exchange, in one of the most prominent and successful yieldco IPOs of 2013.

In December the new yieldco – Pattern Energy – made its first acquisitions, paying its parent company $202m for stakes in two wind projects slated for completion later this year, lifting its portfolio to 1.26GW.

One of the key imperatives for a yieldco like Pattern is to grow its asset base, so it can continue to increase its dividend and keep investors happy.

Pattern has Right of First Offer on a 610MW pipeline of “near term” projects owned by its parent – including a stake in the 270MW K2 project that will soon enter construction in Ontario – that gives it ample breathing room.

“For the next five years we can meet all our growth expectations merely through drop-down projects from our parent,” Garland says. “We have our growth pretty well locked and loaded.”

But, he says, the company is nevertheless likely to buy projects from third-party developers over the next few years “to further enhance our growth”.

“We’re very active in talking with various parties on acquisitions.”

“We don’t have to do deals,” he adds. “But why would you pass up a good way to expand your business in a thoughtful, disciplined way?”

“It’s really just our looking at the market and knowing that there’s consolidation that’s happening. And there may be less consolidation two or three years from now, so it’s a good time to be looking at opportunities.

“There are some good assets in the market today,” he says.

After a terrible 2013 for US wind, in which it added just 1.1GW of new capacity, the US is in the throes of another boom created by the start-stop nature of the Production Tax Credit – with more than 12GW currently under construction, according to the American Wind Energy Association.

All of Pattern’s assets – both those in its current portfolio, and those it expects to buy from its parent over the next few years – are located in North America, with one exception.

The San Francisco-based company also owns a 31.5% stake in the under-construction El Arrayan wind farm in Chile, which will become that country’s largest wind farm when it is brought into full operation this summer.

Garland calls Chile a “very attractive” wind market due to its stable economy and political environment; its high electricity prices, which are denominated in US dollars; and the fact that it is effectively an energy island on the South American continent.

El Arrayan “positions us in Latin America”, he says.

“If we have any interest in expanding [there], it’s a great foothold to start from. We have a reputation, we have actual operating assets we can show people, and we have a sound team down there that we can work from and expand into other markets if they become attractive to us," he says.