Canadian Solar Slides on Low Forecast and Yieldco Indecision

  • Instead of forming a yieldco, some power plants may be sold
  • Company expect panel shipments to incrase 15% in 2016

Canadian Solar Inc. dropped the most in two months after the company issued a lower-than-expected sales forecast for the year and said it’s still on the fence about forming a yieldco to buy some of its $2.5 billion in power projects.

Canadian Solar slumped 13 percent to $18.89 at the close in New York, the most since Jan. 7 and extending its loss for the year to 35 percent.

Canadian Solar, like other clean energy companies, is struggling to figure out what to do with its wind and solar farms now that investors have become leery about forming separate holding companies, called yieldcos, to buy and operate the assets.  

The company is considering a variety of options, including selling some projects or securitizing the assets’ revenue. Or, if investors change their minds, Canadian Solar may proceed with the yieldco plan that was first announced in mid-2014.

“We will remain flexible on how to modify these assets in order to maximize shareholder return,” Canadian Solar Chief Chairman Shawn Qu said in a call with analysts.

Selling assets would boost revenue to a range of $3.2 billion to $3.6 billion this year from a record $3.47 billion in 2015, which was more than the company forecast in February. Without a sale, revenue may decline to $2.9 billion, the company said in a statement Thursday. That’s lower than the $3.3 billion expected by analysts.

Yieldco Plans

Carter Driscoll, an analyst with Friedman Billings & Ramsey Co., said investors are eager to hear about the company’s yieldco plans.

“That’s a big thing,” Driscoll said in an interview before Canadian Solar released its results. “The company held back a bunch of assets in anticipation of that.”

Beating Forecast

Canadian Solar’s net income for the year fell to $171.9 million, or $2.93 a share, from $239.5 million, or $4.11 a share, in 2014. Excluding some items, fourth-quarter earnings of $1.15 a share beat the 76-cent average of nine analysts’ estimates compiled by Bloomberg. The company shipped 4.7 gigawatts of panels last year, beating the forecast it issued last month, and that may swell to 5.4 gigawatts to 5.5 gigawatts this year.

The emergence of yieldcos has been one of the biggest shifts in the industry, raising at least $12 billion in public markets since early 2013. As as they become popular, the competition to buy assets has intensified. That drove up prices of wind and solar farms, netting lower returns for investors and making clean-energy plants less attractive to some buyers.

By the end of 2016, Canadian Solar expects to have 1.1 gigawatts of solar plants operating in industrial nations covered by the Organization of Economic Cooperation and Development. The resale value of those assets is about $2.5 billion at current market prices, and they would contribute about $355 million of gross profit, the company estimated. Revenue from electricity sales of the assets will be $160 million to $170 million a year at the end of 2016.

Canadian Solar said it may sell some of those projects instead of forming a yieldco to channel the revenue from power plants to shareholders. Plunging share prices for yieldcos has chilled the market, pushing Qu to look for an alternative.

“We have several options to monetize our project development expertise,” the company said in a statement. “Our goal is to maximize the long-term return to our shareholders.”

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