NextEra Energy Partners (NEP)

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1 Americas/United States Equity Research Electric Utilities Rating OUTPERFORM Price (16-Nov-16,US$) Target price (US$) week price range Market cap (US$ m) 1,059 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. Research Analysts Andrew Hughes Maheep Mandloi Share price performance Jan A p r Ju l O c t N EP.N S& P IN D EX On 16-Nov-2016 the S&P 500 INDEX closed at Daily Nov17, Nov16, 2016, 11/17/15 = US$26.01 Quarterly EPS Q1 Q2 Q3 Q4 2015A E E NextEra Energy Partners (NEP) INITIATION All the Riches One YieldCo Can Claim; Initiate at Outperform Initiate at Outperform: We initiate coverage of NextEra Energy Partners (NEE Partners) with an Outperform rating and a $33 target price. We see compelling upside from best-in-class dividend growth visibility, improving acquisitions returns, and near-term capital structure flexibility. Leader of the Pack: We view NEE Partners as the premier vehicle in the YieldCo sector to finance the acquisition of long-term and heavily contracted cash flows. Investments primarily in renewable energy assets provide attractive dividend growth for shareholders. Growth visibility is driven by over $2 billion in EBITDA originated by its parent company NextEra Energy and available for dropdown to NEE Partners at increasingly attractive returns. A Plethora of Catalysts to Unlock Value: These include (1) 1Q17 dropdowns at attractive returns and requiring limited equity, (2) NET pipeline expansion update (February 2017), (3) PTC repowering opportunities for wind PPA projects and development of NextEra Energy's wind and solar pipeline, and (4) growth opportunities in contracted energy storage assets. Risks: The following represent risks to our Outperform rating: (1) rising interest rates, (2) asset performance, (3) capital market needs and access, and (4) relative cost of capital disadvantage given IDR splits. Valuation: We project an above-consensus dividend CAGR of 16% through 2020 and believe NEP's growth prospects at the end of our forecast period will be comparable with today. Our dividend yield based valuation methodology reflects that view. Our $33 target price is based on a 5.6% target yield applied to our 2020 dividend estimate of $2.45 and discounted back to the present at 7.7%. Financial and valuation metrics Year 12/15A 12/16E 12/17E 12/18E EBITDA (US$ m) ,030 Prev EBITDA EPS (CS adj.) (US$) P/E (x) P/E rel. (%) EV/EBITDA (Current) Net debt (US$ m) 3,284 3,504 4,649 4,512 FFO/Interest FFO/Total Debt Number of shares (m) IC (current, US$ m) 4, BV/share (Next Qtr., US$) 31.1 EV/IC (x).8 Net debt (Next Qtr., US$ m) 3,504.0 Dividend (current, US$) 1.40 Net debt/tot eq (Next Qtr.,%) Dividend yield (%) - Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 NextEra Energy Partners (NEP) Price (16 Nov 2016): US$25.06; Rating: OUTPERFORM; Target Price: US$33.00; Analyst: Andrew Hughes Income Statement 12/15A 12/16E 12/17E 12/18E Revenue (US$ m) ,150.8 EBITDA ,030 Depr. & amort. (147) (194) (248) (281) EBIT (US$) Net interest exp (114) (256) (249) (274) PBT (US$) Income taxes (15) (19) (50) (63) Profit after tax Minorities (80) (101) -0-0 Reported net income (US$) Other NPAT adjustments Adjusted net income Cash Flow 12/15A 12/16E 12/17E 12/18E EBIT Net interest (114) (256) (249) (274) Change in working capital 17 (20) 0 0 CAPEX (2,007) (917) (1,739) (1,179) Free cashflow to the firm (1,767) (593) (1,293) (647) Aquisitions Divestments Cash flow from investments (1,789) (1,220) (1,739) (1,179) Cashflow from financing activities Changes in Net Cash/Debt (1,497) (220) (1,145) 137 Balance Sheet (US$) 12/15A 12/16E 12/17E 12/18E Assets Cash & cash equivalents Total current assets Total assets 6,112 7,421 8,836 9,767 Liabilities Total current liabilities Total liabilities 4,530 5,277 6,346 6,242 Total liabilities and equity 6,112 7,421 8,836 9,767 Net debt 3,284 3,504 4,649 4,512 Per share 12/15A 12/16E 12/17E 12/18E No. of shares (wtd avg) CS adj. EPS Prev. EPS (US$) Dividend (US$) Free cash flow per share (77.50) (13.56) (20.48) (8.40) Earnings 12/15A 12/16E 12/17E 12/18E Sales growth (%) EBIT growth (%) Net profit growth (%) (67.8) EPS growth (%) (73.6) EBITDA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Valuation 12/15A 12/16E 12/17E 12/18E EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) P/E (x) Price to book (x) Asset turnover Returns 12/15A 12/16E 12/17E 12/18E ROE stated-return on (%) ROIC (%) Gearing 12/15A 12/16E 12/17E 12/18E Net debt/equity (%) Interest coverage ratio (X) Quarterly EPS 2015A Q Q Q Q E E Source: Company data, Thomson Reuters, Credit Suisse estimates Company Background NEE Partners is a dividend growth-oriented company that owns and seeks to acquire long-term contracted energy assets, primarily renewable power generation facilities and natural gas pipelines. Blue/Grey Sky Scenario Our Blue Sky Scenario (US$) Our Blue Sky scenario plays out against a backdrop of stable energy commodity prices, continued low interest rates, and improved sentiment for renewables. Under such conditions, we expect the market would more readily evaluate NEP shares against high growth dropdown MLP names with comparable EBITDA dropdown potential. Our Blue Sky TP uses a discount rate inline with where those names trade today applied to our NEP valuatoin methodology. Our Grey Sky Scenario (US$) Against a negative macro and sentiment backdrop, YieldCo access to financing is likely to disipate and cost of capital is likely to become volatile. Under such a scenario we have observed that names in the sector trade to what the market views as the run-off value of the contracted asset base assuming no residual value, taxes, and the paydown of any corporate liabilities. our Grey Sky TP reflects our estimate of that analysis for NEP shares Share price performance Ja n A p r Ju l O c t N EP.N S& P IN D EX On 16-Nov-2016 the S&P 500 INDEX closed at Daily Nov17, Nov16, 2016, 11/17/15 = US$26.01 NextEra Energy Partners (NEP) 2

3 Investment Thesis NextEra Energy Partners (NEE Partners) is a vehicle setup to own and acquire long-term and heavily contracted cash flows in order to pay a growing dividend. In a market hungry for yield, we view NEP shares as a strong investment opportunity from both an income and capital appreciation perspective. Valuation is attractive given a multi-decade opportunity for 15%+ dividend growth on an annual basis. What sets NEE Partners apart from its peers is the magnitude and quality of low-risk acquisition opportunities from its parent company, NextEra Energy, which is the largest owner of operating wind farms as well as the largest developer. Two big areas of focus for investors in this sector are likely to be rising interest rates and a more uncertain US energy policy under a Trump Presidency. We think YieldCo stocks are pricing in a move in 10 year rates bps above today's level, and greater risk to the future of US renewable energy policy than will be reality. Regardless, NEP shares are most advantaged among peers with respect to both risk factors. Our preference is for stocks with high dividend growth in a rising rate environment, and we forecast the highest level of dividend growth for NEE Partners in the sector. Parent company NextEra Energy also has the largest fleet of operating renewable assets, which means future potential dropdowns are largely derisked from possible changes to renewable energy tax credits. Investment Opportunities Large, Fragmented, and Growing Addressable Market: YieldCo dividend growth is predicated on accretion through acquisition and thus access to capital markets. Given the size, fragmented ownership, and growth in the underlying North American renewable energy market, we believe 10-15% growth for high-quality companies in the sector is sustainable at least through this decade. We estimate that the enterprise value of operating renewable assets in North America today totals roughly $415 billion. Ownership of these existing assets is highly fragmented, and market consolidation represented by the rise of the YieldCo business model is in its earliest stages. Among the subset of operating renewable assets represented by wind and solar projects, we estimate that YieldCos (a subset in which we include ten companies) hold roughly 11% market share. Over 75% of the market is accounted for by non-yieldco owners and non-yieldco sponsors. Moreover, Credit Suisse analysts project cumulative wind and solar installations across North America to grow at a 10%+ CAGR Outside of growth in renewables, we think market size will increase further as other types of contracted energy infrastructure assets become more frequent acquisition targets. This is particularly true of NEE Partners with respect to natural gas pipelines. NextEra Energy Partners (NEP) 3

4 Figure 1: YieldCo Ownership of North America's Operating Fleet Wind and Solar Assets Is Low Figure 2: Ownership of Wind Assets Is Especially Fragmented and NEE Partners has an Inside Track in Consolidation Other 75% YieldCos 11% YieldCo sponsors 14% 270+ portfolios under 250MW* 38 portfolios of MW* 19 portfolios of 500-1,000MW* 6 portfolios over 1,000 MW Pattern Energy Group (PEG LP) NRG Pattern Energy Group (PEGI) Terraform NRG Yield NEE Partners Enel Iberdrola E.ON Invenergy EDP Renewables MidAmerica Avangrid NextEra Energy Resources LLC 0 5,000 10,000 15,000 20,000 Megawatts Commissioned Financed Permitted Highest Quality and Greatest Magnitude of Low-Risk Growth Opportunities: By any measure, NEE Partners has the highest quality, lowest risk, and largest quantity of growth opportunities available to it by its sponsor of any YieldCo. Among operating assets not already part of the NEE Partners' portfolio, the parent company owns nearly 1GW of solar, over 10GW of wind, and roughly 1.1GW of contracted gas assets. An additional 1.8GW of wind and solar assets are expected to become operational in 4Q16. Net of the assets already in place at NEE Partners, we estimate the dropdown opportunity set operating by year-end 2016 represents an additional $1.9B in EBITDA and over $500M in distributable cash flow potentially eligible for dropdown. New investment opportunities in wind, solar, and regulated natural gas pipelines account for an additional EBITDA/CAFD opportunity set of $500m/$145m. Figure 3: NextEra Energy's Operating Asset Base and Contracted Development Opportunity Net of Assets Already at NEE Partners NEER dropdown potential (net of current NEP portfolio) Wind Solar Gas Operating and contracted 8, ,052.5 Texas wind 1, COD 1, contracted delivery contracted deliver Total 12, , ,052.5 This growth opportunity is a key factor in our approach to valuing NEP shares, as it provides a significant degree of confidence that the growth outlook for NEE Partners will look as robust in the outer years of our forecast period as it does today. Our 2020 forecast is predicated on the addition of 2,915MW of wind and solar projects 4Q2016-4Q2020. This represents about 22% of the platform net of projects at NextEra Energy that we expect to NextEra Energy Partners (NEP) 4

5 be operational by the end of this year. Not only is it a fraction of the current base, but the additions assumed in our NEE Partners model are actually below the midpoint of NextEra Energy's forecasted development plans for assets delivered in the timeframe. In other words, it is likely that NEE Partners' growth prospects will actually look better at the end of calendar year 2020 than they do today. Figure 4: EBITDA and CAFD Estimates for NextEra Energy's Renewable Portfolio Net of NEE Partners and Including New Additions Provides a View into the Incremental Cash Flow Opportunity for NEP Shares EBITDA Pre-tax tax credits Debt service Maintenance CapEx Other CAFD 2017 NEER portfolio projections 2,400.0 (930.0) (745.0) (15.0) (65.5) less 2017 NEP renewables (NEER share at 70%) (178.8) (169.0) (2.0) (21.1) Remaining renewables dropdown 1,896.3 (751.3) (576.0) (13.1) (44.4) plus new additions (330.0) (20.0) 0.0 (5.0) Incremental NEP opportunity at year-end ,396.3 (1,081.3) (596.0) (13.1) (49.4) Ahead of 2016 Run-Rate Guidance and Dividend Growth Potential Ahead of Plan: We model a 16% dividend CAGR (and ), which is 130bps ahead of consensus growth expectations over the same period. We view management's targeted 13.5% dividend CAGR through 2020 as the floor for growth. We draw a degree of confidence from our view that the company appears to be ahead of plan for run-rate portfolio financials it as previously projected for year-end 2016,and on its way to meeting newly unveiled run-rate EBITDA and CAFD generation targets for the portfolio exiting Dropdown economics from NextEra Energy appear to be improving, which could improve accretion terms IDR fees notwithstanding over a timeframe where the company appears to have ample liquidity, substantial corporate debt capacity, and adept equity capital markets functionality. Figure 5: Run-Rate EBITDA and Pre-Tax Cash Available for Distribution (CAFD) Are Ahead of Plan for Year-End 2016 Portfolio and Trending Toward Year-End 2017 Guidance IPO CAFD EBITDA Financing and maintenance costs CAFD IPO $249.6 $162.2 $ Palo Duro and Shafter $70.0 $45.0 $ wind assets acquired 2Q15 $80.0 $50.0 $ NET midstream (no expansion $150.0 $35.0 $ Jericho $42.5 $20.0 $ Seiling I and II $78.0 $45.5 $ Cedar Bluff and Golden Hills $75.0 $43.5 $ Desert Sunlight $78.0 $54.5 $23.5 Project-level total $823.1 $455.7 $367.3 Corporate expenses (guidance) ($15.0) $352.3 IDR fees (guidance) ($48.5) Adjusted for corporate OpEx $759.6 $455.7 $303.8 Corporate debt expense (3Q16 deck) ($22.5) Run-rate EBITDA and CAFD $759.6 $478.2 $281.3 YE 2016 run-rate guidance (midpoint) $715.0 $455.0 $260.0 YE 2017 run-rate guidance (midpoint) $925.0 $600.0 $325.0 Source: Company data, Credit Suisse estimates Capital Markets Behemoth: YieldCos are designed to issue equity, and none is as well suited to do so as NEE Partners given its low cost of capital, immense growth opportunity, and relatively small public float. We view this as a distinct advantage in a sector predicated on financially engineered growth, especially one where equity market volatility can be severe and cause YieldCo participants severe financial distress. NEE Partners has issued over $800M in new shares to LP unitholders in three separate transactions since NextEra Energy Partners (NEP) 5

6 Figure 6: NEE Partners Has Dominated YieldCo Equity Issuance Since 3Q2015 September 2015, which includes a period of significant dislocation in equity markets. That figure accounts for nearly 2/3 of all equity priced in the sector since the start of 2H2015 and dwarves the next largest issuer by a significant margin. NEE Partners' strength as an issuer of NEP LP units is an advantage that we think management can exploit relative to the growth prospect of peers with less robust, more risky, and more spaced-out growth prospects. Date Company Offering type Total raise ($M) 22-Jul-15 Pattern Follow-on $ Jul-15 Terraform Global IPO $ Sep-15 NEE Partners Follow-on $ Feb-16 NEE Partners Follow-on $ Aug-16 Pattern Follow-on $ Sep-16 NEE Partners Follow-on $ Sep-16 8Point3 Follow-on $103.0 Figure 7: NEP Share Performance Following Equity Offerings Priced Since 2H2015 Lowest Cost of Capital: An important implication of NEE Partners' growth outlook is its sector-best cost of capital. More obvious longer-term benefits are visible dividend growth well into the next decade. This growth will clearly necessitate substantial capital markets activity, which returns to the theme of financially engineered growth. What separates NEE Partners from the circular logic often inherent in these types of stories is that its growth prospects do not rely on the company plowing funds back into its sponsor so that NextEra can develop the assets its YieldCo needs for growth. The assets are already there, and NextEra sports an $88B balance sheet with a very well respected management team at the helm. As a result, we view NEP's low cost of capital as durable, particularly since we are confident the company will continue to demonstrate it is earning at least that through the dropdown of assets. Figure 8: Estimated WACC for Select YieldCos WACC 8Point3 Energy Partners NEE Partners NRG Yield Pattern Energy Estimated cost of equity 12.76% 10.00% 13.56% 13.88% Cost of debt 3.60% 5.60% 5.00% 4.25% Weighted average cost of capital 10.4% 7.8% 8.1% 8.9% Source: Company data, Credit Suisse estimates Increasing Comfort that Acquisitions Accrete Value to LPs: We estimate NEE Partners earned an 8.6% unlevered IRR through the contract period (~10% levered return, 11% cash return) on its recent Desert Sunlight transaction. We estimate these figures before taking into consideration incentive distribution right fees. Taking into account IDR fees, we estimate a levered IRR closer to 7%. This compares with our ~5% unlevered and ~7% levered IRR estimates for NYLD's CVSR acquisition. The conflicts committee at NEE Partners appears to be doing its job by assessing value creation to NEP shareholders net NextEra Energy Partners (NEP) 6

7 of IDR fees in addition to dividend accretion. We expect future deals will continue to reflect value creation for NEP shareholders net of IDRs and mitigate fears that the company's IDR structure is too significant a drain on growth and value creation. It is also worth pointing out that being able to assess acquisition IRRs with any degree of confidence is a testament to NEE Partners' best-in-class disclosure when it comes to transactions. Few other companies in the sector provide project capital structure in addition to EBITDA and CAFD forecasts for dropdowns, a fact that in the past has caused investors to question whether any value was being created in the sector. Optimized Structure Fits the Opportunity: NEE Partners' corporate structure, a partnership with associated incentive payments (IDR fees) atop a more traditional YieldCo setup, fits the company's low-risk growth outlook. The company is the exception to our general dislike of IDR fees because of the large magnitude, high quality, and low risk of its dropdown opportunity set. An IDR fee in this case strikes an appropriate balance of motivations. From NextEra Energy's perspective, the IDR fee acts as incentive to deliver advantageous terms on dropdowns to NEE Partners because of the long tail of growing LP and GP cash distributions it owns. From NEE Partners' perspective, we view the IDR fee as security of near-, mid-, and long-term growth at value accretive prices. Beyond the IDR fee, we also observe smart structuring in terms of tax and wind tax equity efficiency. NextEra owns its economic interest in NEE Partners through an entity called NEE Partners' Operating Partners (OpCo), which directly owns the various different project subsidiaries. This Up-C structure creates an optimized tax platform that allows for the step-up in the tax basis for NEE Partners' share of the assets in OpCo, which accretes value to NEP shareholders through accelerated depreciation (MACRS) at the higher basis. Tax equity efficiency is a result of the PayGo structure innovated by the parent company, and gets its name because investors contribute capital over the ten-year production tax credit (PTC) recapture period. This helps drive strong upfront returns, although it results in a slightly lower tail of cash flows over the last roughly ten years of an asset's contract life. Investment Risks Interest Rates and Energy Commodity Price Sensitivity: Primary risks to continued growth in the sector overall are fluctuations in interest rates and the commodity price sensitivity company stock prices have demonstrated. YieldCos are a product of a low interest rate environment. Rising interest rates pose risks to capital structure, M&A prospects and valuation. Most existing debt facilities are fixed rate, or heavily swapped, so we ascribe greater concern to the latter two issues. Given the long-term contracted nature of the underlying assets in the sector, long-term rates are most pertinent. Rising rate fears notwithstanding, we note the ten-year Treasury remains ~30bps below where it was at the time of the sectors first IPO in July NextEra Energy Partners (NEP) 7

8 Figure 9: Long-Term Interest Rates Remain 40bps Below Their Level at the Time of the Sectors First IPO and 80 Bps Below Their Level from the Sector's Most Recent Year Treasury Yield (%) /3/2006 2/3/2007 3/3/2008 4/3/2009 5/3/2010 6/3/2011 7/3/2012 8/3/2013 9/3/ /3/ /3/2016 US 10 Year Treasury 10 Year Rate at NYLD IPO In the sector's brief history, stock prices overall have demonstrated greater correlation to oil price fluctuations, which we view as a technical factor given the limited role oil serves as an input to electricity generation in the United States in particular. We note, however, that stock prices have more recently shown greater sensitivity to interest rates than in the past. Figure 10: YieldCo (CAFD, NEP, NYLD, PEGI) and NEP Share Price Correlation with Brent Oil Price < less correlated/more correlated > (0.20) (0.40) (0.60) (0.80) Figure 11: YieldCo (CAFD, NEP, NYLD, PEGI) and NEP Share Price Correlation with Ten-Year T Rates < less correlated/more correlated > (1.00) (0.80) (0.60) (0.40) (0.20) (1.00) 3Q15 4Q15 1Q16 2Q16 3Q16 4Q Q15 4Q15 1Q16 2Q16 3Q16 4Q16 YC stock price correlation with Brent oil price NEP brent correlation YC stock price correlation with US 10 Year rate NEP rates correlation NextEra Energy Partners (NEP) 8

9 Our preference is to own stocks with higher growth potential into a rising rate environment, a position which is supported by our observation of the performance of high growth integrated utility stocks versus high yield integrated utility stocks in rising rate cycles. As we have made clear, our forecast for NEE Partners' dividend trajectory is well above peers. Moreover, we think current YieldCo sector valuation is pricing in interest rates bps above their rapidly evolving post-election level. We expect the current spread versus 10 year Treasury yields the YieldCo stocks currently reflect to compress, which is likely to be most positive to NEP shares, in our view. Least exposure to a more uncertain US energy policy outlook: We think the wholescale rollback of renewable energy tax credit extensions under a Trump Presidency is unlikely, and that NEE Partners has the least risk exposure to a more uncertain US energy policy outlook than peers. While US-centric, the company's growth prospects can draw on already operating assets, which would have little to no exposure to any changes in renewable energy tax credits no matter how likely or unlikely. Another interesting and potentially positive change that may come about for the YieldCo sector as a whole in a Trump presidency is the revival of the dormant MLP Parity Act. The Act, which would extend the tax treatment enjoyed by Master Limited Partnerships (MLPs) to renewable assets, has been introduced in at least two prior Congresses, and is a bipartisan bill most championed by Republican Lisa Murkowski. While it has stalled in each session in which it has been introduced, and likely fell more out of favor following the ITC and PTC extensions, it could become a more viable option for wind and solar assets at the end of tax credit phasedowns or in lieu of them today should it pass. Significant Capital Expenditure Profile for 2017 and Beyond: There is no escaping the fact that NEE Partners' growth requires an ambitious 2017 capital markets campaign. We estimate the company will need to raise at least $550M next year through a combination of corporate debt and new equity to fund growth opportunities net of project related financing. We model the next equity offering to occur in 2Q17, although it could come as late as 2H17 if management decides to issue corporate debt toward the high end of the $ M range discussed on the 3Q16 earnings call. Management commentary from that call seems to indicate a preference for equity, hence our forecast of $350M in new equity capital for We note that NEP shares have underperformed in the one to two months following recent new issuance but recovered thereafter. NET Transaction Potentially Less Accretive than Planned: On its 3Q16 earnings call, management indicated that certain growth opportunities it had identified for its Texas pipeline assets at the time of acquisition may not come to fruition. The near-term impact of this is positive as it resulted in a writedown of the contingent earn-out liability associated with growth projects considered in the original purchase price. However, management had originally estimated that growth projects funded by the earnout could generate an additional $30M in cash available for distribution. While additional cash flows could come through the open-season bidding process now in progress, we view more risk to incremental pipeline growth than at the time of the initial acquisition. IDRs an Increasing Focus for Investors, but Structure Unlikely to Change in the Near Term: IDR fees are a drag on cash flows to NEP shareholders. As evidenced by questions on recent earnings calls, the company is under increasing pressure to spell out what if any IDR restructuring activities might be at its disposal over the longer term. IDR fees are most popular in the MLP sector, and based on our observations of those companies, it appears unlikely that any serious reconsideration will occur. While there is no true rule of thumb, Credit Suisse MLP analysts contend that only when IDR fees represent 40% of total cash distributions do management teams seriously rethink IDR structuring. Even on our more aggressive growth forecast, we do not see NEE Partners' IDR distributions nearing that level until early next decade. NextEra Energy Partners (NEP) 9

10 Figure 12: We Do Not Expect IDR Fee Payments to Near 40% of Total Cash Distributions until 2021 at the Earliest 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21 GP/IDR distributions LP distributions Catalysts and Events to Monitor 1H2017 Dropdown Activity: Forecasting the exact timing of and assets included in the next dropdown is a difficult exercise. Our model assumes that three U.S. wind assets, Day County, North Sky River, and Story County Wind, are NEE Partners' next acquisition targets from its parent company's operating portfolio in the 1Q17 timeframe. We think a transaction is most likely to be announced by the time of its next earnings call in February. February 2017 Update on NET Pipeline Growth Opportunity: Management intends to elaborate on the incremental growth prospects of its Texas pipeline business on its next earnings call scheduled for February Capital Markets Activity: We anticipate that NEE Partners will fund its next most immediate growth acquisition by tapping corporate debt markets to the tune of $200M in 1Q17. Rather than use up the bulk of its remaining corporate debt capacity ($ M per management commentary during 3Q16 earnings), we expect the company to tap equity markets for any additional asset purchases in Wind Repowering and PTC Eligible for PPA Projects: NextEra Energy highlighted roughly 1.3GW of new Production Tax Credit eligible wind repowering opportunities on its latest conference call. Thus far, only older assets with shorter duration hedge contracts have been the focus of repowering efforts. We anticipate the next update to include discussion of repowering opportunities for assets with Power Purchase Agreements (PPAs). Golden Hills Energy Storage Project: NextEra Energy has vowed to be a leader in energy storage much in the same way it has become the unquestioned leader in the development of wind assets. One of the first major battery development projects underway is that the Golden Hills wind site, which is an asset owned by NEE Partners. The proposed 30MW energy storage project is slated to go online in January 2019, and has a ten-year PPA term with PG&E. NextEra Energy Partners (NEP) 10

11 Key Charts Figure 13: Counterparty Credit Quality for NEE Partners' IPO Portfolio Figure 14: Remaining Contract Duration by CAFD Contribution for NEE Partners Current Portfolio Baa1 25% A3 50% Aa2 25% Figure 15: NEE Partners Right of First Offer (ROFO) Pipeline Will Be Operational by End of 2016 Figure 16: 100% of NEE Partners Right of First Offer (ROFO) Pipeline Will Be Operational by End of ,000 15,000 Megawatts 10,000 5,000 0 CAFD NEP NYLD PEGI ROFO operating ROFO development Sponsor operating Sponsor development NextEra Energy Partners (NEP) 11

12 Figure 17: Revenue, EBITDA, CAFD, and DPS projections for NEE Partners Figure 18: LP and Total Distribution per Share forecasts for NEE Partners $1,800 $3.00 $ millions $1,600 $1,400 $1,200 $1,000 $800 $600 $2.50 $2.00 $1.50 $1.00 $ per share $400 $200 $0.50 $ $0.00 Revenue EBITDA CAFD LP distributions(rhs) NextEra Energy Partners (NEP) 12

13 Financial Model Like its peers, NEE Partners is at its core a financially engineered dividend growth vehicle driven by a portfolio of long-term contracted renewable power and energy infrastructure assets. Fixed-price offtake contracts, in most cases Power Purchase Agreements (PPAs) with high credit counterparties in the utility sector, generate predictable, albeit quarterly variable, revenues. Less operating costs, debt service, payments to tax equity investors where applicable, and maintenance capital expenditures, the assets also generate fairly predictable cash flow. In NEE Partners' case, roughly 75% of counterparties to IPO assets had credit ratings of Aa2 or greater (and 100% at Baa1 of higher). We estimate the current weighted average contract period remaining at over 18 years, which compares favorably with peers like Pattern and NRG Yield. Seasonality in electricity production, timing of interest and principal repayments, common control accounting conventions, minority ownership interests, and a steady drumbeat of acquisitions and capital markets activity ensure YieldCo models are complex. From a forecasting point of view, simplifying around key metrics of adjusted EBITDA, debt and maintenance service, cash available for distribution, and capital allocation is most useful. Revenue and EBITDA Based on an asset build-up of acquisitions through its most recent purchase of Desert Sunlight, NEE Partners' current portfolio generates roughly $760M of EBITDA on a run-rate basis. Guidance originally established in September 2015 forecasted run-rate EBITDA generation for the portfolio at year-end 2016 of $715M at the midpoint, suggesting that NEE Partners' portfolio is running ahead of plan. This is important as it suggests total capital needs might be slightly less than otherwise required to meet recently released guidance for the portfolio at year-end 2017, which targets $925M in run-rate EBITDA. We estimate that the current wind and solar portion of the portfolio has on average 18 years of contract life remaining, which compares favorably with peers like Pattern and NRG Yield. Figure 19: NEE Partners Estimated Run-Rate EBITDA Build-Up $900 $800 $700 $600 EBITDA ($M) $500 $400 $300 $200 $100 $0 NextEra Energy Partners (NEP) 13

14 Figure 20: NEE Partners Key Financial Model Drivers Dropdown Potential So Large It Is Hard to Specify Growth in our model is driven by the acquisition of additional long-term contracted wind and solar assets through dropdown transactions with parent company NextEra Energy. U.S. wind assets are the primary driver of this growth, although we also consider the acquisition of certain solar assets as well, particularly those in which the company already owns a minority stake for tax credit purposes (Ashtabula and McCoy). Our dropdown forecast relies primarily on NEE Partners' identified Right of First Offer (ROFO) portfolio, which represents a fraction of the broader opportunity set. While it is entirely likely, and perhaps even probable, that the company will acquire assets other than those on the actual ROFO list, it is very difficult to predict which specific assets not on the ROFO list will be acquired. Management's propensity to go off-script in terms of asset dropdowns is best illustrated by the fact that the current portfolio generates 3x the EBITDA and CAFD of the IPO portfolio and is 2.8x (or 1,758MW) larger on a Megawatt basis, but the original ROFO list is only 334MW smaller today than at the time of IPO. Renewable segment model drivers Revenue per MWh $65.46 $71.30 $74.69 $77.99 $79.42 $78.85 Operating costs per MWh $14.69 $22.48 $20.18 $20.18 $20.15 $20.16 Power GPM% 77.6% 68.5% 73.0% 74.1% 74.6% 74.4% Operating costs per watt $0.05 $0.07 $0.06 $0.06 $0.06 $0.06 D&A per watt $0.06 $0.05 $0.06 $0.06 $0.06 $0.06 Maintenance capex per watt Total growth capex 1, , , ,310.6 Project debt Project tax equity Cash Reported or estimated MWh produced 5,457 7,709 10,858 12,704 14,962 17,402 Implied or assumed capacity factor 35.93% 35.03% 36.37% 36.39% 36.44% 36.42% MW in operation (consolidated) 1,734 2,512 3,408 3,986 4,687 5,455 Source: Company data, Credit Suisse estimates We model a ~21% CAGR in revenue and a 20% CAGR in EBITDA For the sake of specificity and in order to forecast near-term acquisitions more accurately, our 24-month growth forecast relies primarily on the assets identified in Figure 21. Beginning in 2Q2018, our model begins incorporating a greater degree of assets from NextEra Energy's broader wind portfolio not explicitly identified on the ROFO list. Unlike peers, we expect NEE Partners' average revenue per MWh will hold steady and potentially even increase. This is a function of large-scale solar assets on the ROFO list with legacy contracted PPA prices considerably higher than newer solar PPA prices, and a similar phenomenon, although less pronounced, for certain wind projects. NextEra Energy Partners (NEP) 14

15 Figure 21: NEE Partners' Current Right of First Offer (ROFO) Project List Looks a Lot Like the One From its IPO Documents Name Location Status Technology COD MW PPA end date CS Acquisition Story II Iowa Operating Wind Dec Q2017 Day County South Dakota Operating Wind Apr Q2017 North Sky River California Operating Wind Dec Q2017 Mountain View Nevada Operating Solar Jan Q2017 Adelaide Ontario Operating Wind Aug Q2017 Bornish Ontario Operating Wind Aug Q2017 Goshen Ontario Operating Wind Jan Q2017 Adelanto I and II California Operating Solar Sep Q2018 East Durham Ontario Operating Wind Jul Q2017 Silver State South Nevada Development Solar 3Q Q2019 McCoy California Development Solar 4Q Q2018 Resource Variability and Timing of Debt Payments An important nuance of our quarterly model investors should appreciate for all companies in the sector is seasonality of revenue and EBITDA. NEE Partners' portfolio is disproportionately wind weighted, which means power production is likely lowest during the third quarter despite that period being a strong one for solar production. From a financial perspective, the impact of seasonality in year-over-year results is mitigated by the timing of dropdowns. From a cash flow perspective, seasonality of resource availability may also be mitigated or exaggerated by timing of debt repayments, which vary facility to facility. In theory, the NET Pipeline assets inject a degree predictability into the model, although the impact is somewhat difficult to assess because the financial performance of the Texas pipeline is not segmented. Cash Generation and Distribution The key to the YieldCo business and financial model is cash flow generation, distribution, and growth in both. YieldCos pay dividends based on a payout of cash available for distribution, commonly referred to as CAFD and not to be confused with the ticker for 8Point3 Energy Partners that uses the same acronym. CAFD is essentially free cash flow less principal repayment on amortizing debt, and adding back acquisition capital expenditures. Growth in CAFD is driven by the acquisition of additional long-term contracted assets financed by accessing equity and debt capital markets. We estimate NEE Partners' current portfolio generates $280M in CAFD on an annualized basis, or roughly $1.80/share based on 156M shares outstanding following September's equity raise. On an annualized basis we forecast a 4Q2016 dividend payment of $1.40, which implies a 77% payout on current distributable cash flow, which is well below the sector average of 85-90%. At a normalized payout for the sector, NEE Partners could distribute a dividend 9-15% higher than it is currently without additional acquisitions. Date NextEra Energy Partners (NEP) 15

16 Figure 22: NEE Partners Estimated Run-Rate EBITDA Build-up CAFD ($M) $400 $350 $300 $250 $200 $150 $100 $50 $0 Of course we do not expect NEE Partners to stop there, and neither should investors. We forecast above-consensus LP dividend growth of 16% on a compound annual basis through We view management's more conservative 13.5% midpoint target more as a floor for dividend growth potential. In our view, the magnitude of the growth opportunity, current liquidity, corporate debt capacity, management's capital markets aptitude, and sponsor balance sheet strength justify an above-guidance forecast. Figure 23: NEE Partners Total and LP Distributions per Share $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 Total distributions per share Limited Partner distributions per share NextEra Energy Partners (NEP) 16

17 Incentive Distribution Rights (IDRs) By virtue of its large, low-risk, and growing dropdown opportunity set, NEE Partners is the YieldCo most justified in operating under a partnership structure that includes an incentive distribution rights (IDR) fee. IDR fees are a double-edged sword from the perspective of NEP shareholders. On the one hand, they ensure NEP shareholders that NextEra Energy has a strong incentive to offer assets from its massive operating and development platform to NEP at a reasonable price to facilitate accretive distribution growth. On the other hand, the IDR fee also requires that NEP shareholders do not get to share in the full upside potential of dropdowns from NextEra Energy beyond certain thresholds. Ultimately, this results in a higher cost of capital than NEE Partners would otherwise have. If the visible growth potential at NEE Partners was not as robust as it is, this would, in our view, be a more substantial drag on NEP shares. Nevertheless, management is under pressure from investors to address what if any changes it might make to the current IDR fee structure. The company has operated in the highest split tier for about 12 months. While there are examples of IDR fee restructuring in the MLP sector, and management has tools at its disposal, we think the team is unlikely to make any changes to the IDR structure in the near future. Our MLP analysts contend that not until IDR fees represent about 40% of distributions do companies typically act to restructure. Based on our model, we do not foresee NEP reaching near that level until the 2021 timeframe at the earliest. Figure 24: NEE Partners Share of Distributions Between Limited Partners (NEP Shareholders, Shown in Blue) and the General Partner (NextEra Energy) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21 GP/IDR distributions LP distributions IDR fees are familiar to investors in the Master Limited Partnership (MLP) sector, but less so to investors in traditional power or renewables. They entitle NextEra Energy as NEE Partners' sponsor to receive an increasing share of cash distributions as thresholds for distributions at NEE Partners are achieved. The share that NextEra Energy is entitled to grows as distribution levels referred to as splits or thresholds are achieved. A new split or threshold is reached once LP unitholders received their maximum distribution allowed under the prior tier level. NextEra Energy Partners (NEP) 17

18 Figure 25: NEE Partners IDR Fee Schedule Thresholds Distribution per unit target amount Share of cashflows Quarterly Annually LP Unitholders GP Unitholders Minimum Quarterly Distribution (MQD) $ $ % 0% First Target Distribution level from MQD up to: $ $ % 0% Second Target Distribution level from top of 1st threshold to: $ $ % 15% Third Target Distribution level from top of 2nd threshold to: $ $ % 25% Thereafter above the level at the top end of 3rd threshold $ $ % 50% Balance Sheet and Capital Allocation We forecast over $1.7 billion in aggregate capital needs in 2017 to build a portfolio capable of achieving management's year-end targets. Assuming 60% project financing either in the form of non-recourse debt or tax equity, this should require $ M in cash and outside funds. Management has clearly articulated the company's capacity for corporate debt but also suggested that it would not use all of that capacity to fund 2017 growth. In our view, management is more likely to want to tap equity markets than use corporate debt, viewing the latter as fallback flexibility should equity markets experience a dislocation comparable with 2H2015. As noted, that dislocation did not prevent NEE Partners from tapping equity markets. Figure 26: NEE Partners Cash Flow from Financing Activities Forecast CASH FLOW STATEMENT (NEP) Members' Distributions (491) (204) (239) (305) (386) (463) (527) Issuances / (Retirements) of Long-term debt (104) (115) 130 (125) Deferred financing costs (15) (10) Common Unit Issuance Payments to differential membership investors (5) (9) Other Financing Cash Flow 1, , Figure 27: NEE Partners Key Balance Sheet Metrics Our 2017 forecast assumes the company raises ~$590M in outside capital, $350M of which we anticipate will come through an equity offering timed in our model for 2Q17. We assume the company raises equity at a conservative 5% indicated yield, which is reflective of the current trading price of NEP shares and at the high end of the historical range. Visibility into the timing of dropdowns is limited, which is one factor that could impact the date of an equity raise. Another is greater use of corporate debt to fund acquisitions. In general, we take a marginally negative view of the use of corporate-level debt at the YieldCo level, but have come to appreciate the flexibility it affords management teams in driving financially engineered growth during periods of equity market volatility. Key balance sheet metrics Net Debt 3,284 3,504 4,649 4,512 4,466 4,779 Off B/S debt NCI Shareholders equity 1,582 2,145 2,490 3,525 4,296 4,929 Total capital 4,866 5,907 7,376 8,252 8,956 9,880 Net Debt / EBITDA (Adjusted) 8.1x 5.9x 5.5x 4.6x 4.0x 3.8x Net Debt + NCI / EBITDA (Adjusted) 6.6x 6.3x 5.8x 5.5x 5.6x Net Debt / Cap 67.5% 62.0% 65.1% 56.1% 51.0% 49.2% Net Debt / Equity 207.6% 163.4% 186.7% 128.0% 103.9% 97.0% Source: Company data, Credit Suisse estimates NextEra Energy Partners (NEP) 18

19 A key feature of the YieldCo structure is the use of project-level financing that is non-recourse to the company. Assets are typically acquired once operational, and the financing is already in place. In addition to being non-recourse to the corporate entity, project-level debt is typically fully amortizing over a period that in most cases is timed to end at least one year before the end of the project's contracted period. This means that the outer years of contracted cash flows can jump substantially. It also means that any residual value generated by either a new contract or merchant electricity sales can be quite attractive even if the price per unit drops significantly. We project NEE Partners' leverage metrics will improve, as we expect the bulk of project-level financing for future dropdowns to be tax equity structures rather than project debt facilities. There is still obviously a cost to tax equity financing that is reflected in our distributed cash flow model, but the point remains that the increased use of tax equity helps exaggerate improvements in leverage metrics. Inclusive of noncontrolling tax equity interest, we conservatively estimate that net debt and noncontrolling interest are roughly 6x year-end 2016 EBITDA and will decline steadily to below 5x by 2019 as project debt facilities are paid down. NextEra Energy Partners (NEP) 19

20 Company Overview NextEra Energy Partners (NEE Partners, ticker NEP) owns, operates, and seeks to acquire long-term contracted renewable power generation assets and natural gas pipelines in the United States and Canada. The company's primary financial mission is to pay a growing dividend from the predictable cash flows generated by its operating assets and through the acquisition of additional long-term contracted energy infrastructure assets. The vast majority of those growth opportunities come via its parent company NextEra Energy, whose subsidiary NextEra Energy Resources owns and develops a vast array of energy infrastructure assets. NextEra Energy owns the General Partner (GP) of NEE Partners as well as a substantial stake in the company's limited partnership (LP). Figure 28: NEE Partners Assets Are Strategically Located in Resource and/or Revenue Rich Locations Throughout the United States and Canada (Wind Assets in Blue, Solar Assets in Yellow, and Gas Pipeline Assets in Red) Source: Company data, Credit Suisse estimates, SNL. NEE Partners' corporate structure is more complicated than its YieldCo forbearers, but for good reason. As the name suggests, NEE Partners is a partnership structure, in which NextEra Energy is the General Partner and NEP unitholders the Limited Partner. This partnership sits atop a more traditional YieldCo structure. In addition to its role as GP of NEE Partners, NextEra Energy also owns a special voting interest in NEE Partners, which ensures it voting rights in matters not otherwise in control of the GP. Given the magnitude and quality of dropdown opportunities NextEra Energy can offer for sale to NEE Partners, we think the parent company's disproportional voting powers are in the best interest of NEP shareholders. As with the IDRs, this would not be the case if the growth opportunity were not as robust and low risk as it is in this case. NextEra Energy Partners (NEP) 20

21 NEE Partners has also been setup optimally for tax purposes and in such a way that creates value for limited partners as well. The two-tier ownership structure allows for the step-up in the tax basis of NEE Partners' portion of assets owned by the operating company. This higher basis is a key part of the reason NEE Partners does not expect to pay significant U.S. federal taxes for at least 15 years due to the Modified Accelerated Cost Recovery System (MACRs), which creates Net Operating Losses (NOLs) for tax purposes. Figure 29: NEE Partners Corporate Structure Is Essentially a Partnership Structure (Indicated in Black Outline) Atop a Traditional YieldCo Structure (Indicated in Green Outline) that Preserves NextEra Energy's Voting Rights While Ensuring the Optimized Tax Structure of an Up-C" Another worthwhile note on tax treatment relates to dividends. Even though NEE Partners is organized as a limited partnership under state law, the corporate entity is treated as a corporation for U.S. federal income tax purposes. Accordingly, if the company makes distributions from current or accumulated earnings and profits as computed for U.S. federal income tax purposes, those distributions are taxable to unitholders as ordinary dividend income for U.S. federal income tax purposes. Distributions paid to non-corporate U.S. unitholders will be subject to U.S. federal income tax at preferential rates, provided that certain holding period and other requirements are satisfied. However, it is difficult for us and for the company to predict whether NEE Partners will generate earnings and profits as computed for U.S. federal income tax purposes in any given tax year. Although the company expects that a portion of its distributions to unitholders may exceed its current and accumulated earnings and profits as computed for U.S. federal income tax purposes and therefore constitute a non-taxable return of capital distribution to the extent of a unitholder s basis in its units, this may not occur. In addition, although return-of-capital distributions are generally non-taxable to the extent of a unitholder s basis in its units, such distributions will reduce the unitholder s adjusted tax basis in its units, which will result in an increase in the amount of gain (or a decrease in the amount of loss) that will be recognized by the unitholder on a future disposition of NEE Partners' common units. To the extent any return-of-capital distribution exceeds a unitholder s basis, such distributions will be treated as gain on the sale or exchange of the units. NextEra Energy Partners (NEP) 21