Pattern Energy to Enter Japan Market with Acquisition of Projects and a Modest Investment in Development

Pattern Energy Group Inc. today announced a series of transactions highlighted by: 1) agreements to acquire 206 megawatts of owned capacity in projects from Pattern Energy Group LP and Green Power Investments; and 2) an additional investment in Pattern Energy Group 2 LP to fund the acquisition of a controlling interest in GPI, a Japanese renewable developer, from Pattern Development 1.0.

"These investments represent Pattern Energy's entry into the exciting Japanese renewables market by acquiring a portfolio of projects and by making an additional investment in Pattern Development 2.0 to fund a well-established operating and development management team, GPI," said Mike Garland, CEO of Pattern Energy. "Japan is one of the largest electrical grids in the world and has one of the most robust renewable energy markets. Under the Feed-in Tariff ("FiT") power contracts, these initial projects average ¥25,340 per megawatt hour (or the equivalent of $230/MWh at an ¥110/USD exchange rate). GPI's development pipeline consists of 2.4 gigawatts of projects, including 600 MW of wind capacity which have qualified for FiT contracts. Additionally, we believe that as we grow our portfolio, we will be able to enhance our economics over time with the use of local, low cost capital."   

Transaction Highlights

• Increases Pattern Energy's operating portfolio to nearly 4 GW of gross capacity, with more than 2.9 GW of owned capacity, across 25 projects, including the projects it has agreed to acquire
• The 206 MW portfolio consists of two operating solar projects (Futtsu and Kanagi), one operating wind project (Otsuki) and two in-construction wind projects (Ohorayama and Tsugaru)
• The cash purchase price for the 84 MW portfolio of Futtsu, Kanagi, Otsuki and Ohorayama is approximately $131.5 million, which represents a 10.5x multiple of the five-year average cash available for distribution¹ ("CAFD")
• The cash purchase price for the 122 MW Tsugaru project is approximately $194.0 million, which represents a 9.0x multiple of the five-year average CAFD¹ starting with the first full year of operations in 2021
• A $27 million investment in Pattern Development 2.0's acquisition of Pattern Development 1.0's controlling interest in GPI
• All funding required for the transactions will be provided from available liquidity at Pattern Energy

Otsuki Wind

The Otsuki Wind project commenced commercial operations in the fourth quarter of 2006 and operates under a 20-year power purchase agreement with Shikoku Electric Power Company, which has an A- credit rating.

Located just a few miles from the Ohorayama Wind project in the Kochi prefecture, the 12 MW Otsuki Wind project consists of twelve Mitsubishi wind turbines.

Ohorayama Wind

The Ohorayama Wind project is expected to commence commercial operations in March 2018 and will operate under a 20-year power purchase agreement with Shikoku Electric Power Company, which has an A- credit rating.

Located in Kochi prefecture, on the island of Shikoku, the 33 MW Ohorayama Wind project consists of eleven 3.0 MW GE wind turbines.

The $131.5 million acquisition price for the 84 MW project portfolio (Futtsu, Kanagi, Otsuki and Ohorayama) and the $27 million investment in Pattern Development 2.0 will be funded from existing corporate liquidity sources. Pattern Energy will also enter into a 12-year hedge agreement for the four projects to manage the foreign exchange movements of the cash flows from the Japanese assets. The acquisition and funding of these projects is expected to close in March 2018.

Tsugaru Wind

The Tsugaru Wind project is expected to commence commercial operations in mid-2020 and will operate under a 20-year power purchase agreement with Tohoku Electric Power Company (unrated).

Located in Aomori prefecture, the 122 MW Tsugaru Wind project will consist of 38, 3.2 MW GE wind turbines.

The $194.0² million total consideration for the acquisition of the Tsugaru project is split into two payments and will be financed such that no Pattern Energy corporate capital is required until commencement of commercial operations. The initial payment totaling approximately $79.7² million will be funded at the closing of construction financing for the project utilizing existing liquidity. Local construction debt bridge facilities will close shortly thereafter replacing this capital and will provide a natural foreign exchange hedge during the construction period. The second cash consideration payment of ¥12.567 billion is payable to Pattern Development 1.0 upon the term conversion of the construction loan³, which is expected in mid-2020. As part of the agreement, Pattern Development 1.0 has agreed to reimburse Pattern Energy for construction cost overruns up to a cap.

Japanese Renewables Market

The Japan power market consists of 248 GW of installed capacity of all forms serving 985 terawatt hours ("TWh") of demand.⁴ The Japanese Wind Power Association is targeting 36 GW of installed wind capacity by 2030 from a base of approximately 3 GW in 2016. Power purchase agreement prices range from US$220 to US$360/MWh.

The Conflicts Committee of the Board of Directors of Pattern Energy, which is comprised entirely of independent directors, reviewed and recommended the terms of the acquisitions for approval by the Board of Directors, and it was approved by the Board. The Conflicts Committee was advised on financial matters by Evercore Group L.L.C., which also provided a fairness opinion.