NRG Yield Inc will buy the largest wind farm in North America for $870 million, helping parent NRG Energy Inc bulk up its clean energy portfolio and comply with strict air emission rules.
NRG Yield shares rose 5 percent to a life high of $49.38 on the New York Stock Exchange on Wednesday morning.
The purchase of California's Alta Wind Energy Center will add 947 megawatt (MW) of capacity — enough to power nearly 400,000 homes — to the companies' wind portfolio.
"In a way this purchase dilutes the exposure that NRG Energy investors have to coal or fossil fuel generation," said Morningstar analyst Travis Miller.
NRG Energy has 22 coal plants, 81 oil and gas plants, one nuclear plant and 46 other clean energy plants.
Power utilities are looking to cope with tightening air emission regulations, the latest being the U.S. Environmental Protection Agency's plan to cut carbon emissions to 30 percent by 2030 from 2005 levels.
NRG Energy said last December that it would close two coal-fired power plants in Maryland. The company formed NRG Yield to acquire and operate clean energy assets in December 2012.
NRG Yield, which has a stable cash flow because of its long-term power-purchase agreements with utilities, will buy the wind farm from an affiliate of private-equity firms Global Infrastructure Partners and Arclight Capital Partners.
The acquisition assumes project financing cost of $1.6 billion, and is expected to close in the third quarter.
Alta Wind, located in the Tehachapi Pass in California's Kern County, contracts long-term power purchase agreements with Edison International.
The deal, including some land leases associated with the Alta Wind facility, is expected to add $220 million to NRG Yield's annual run-rate earnings before interest, taxes, depreciation and amortization, NRG Yield said on Wednesday.
Bank of America Merrill Lynch acted as exclusive financial adviser to NRG Yield while Jones Day served as legal counsel.
NRG Energy shares were up slightly at $36.17.
(Additional reporting by Narottam Medhora and Ankush Sharma in Bangalore; Editing by Simon Jennings and Joyjeet Das)