Owners of Solar Yieldcos Head Toward Door Marked `Sell'By
Abengoa, First Solar among those considering selling yieldcos
Rising debt, low panel prices may spur shedding of assets
Two years ago, solar and wind developers couldn’t get enough of a security that helped finance their clean-energy projects. Now, a growing number are considering cashing out.
The industry created publicly traded securities, known as yieldcos, to raise capital for new construction, which attracted shareholders eager for dividends from the sale of electricity. Fifteen U.S. and European companies raised $12 billion in public markets through mid-2015 as renewable energy grabbed an increasing share of the global power market, according to Bloomberg New Energy Finance.
But with mounting debt and slumping prices for electricity and solar panels, companies like First Solar Inc. and Abengoa SA are exploring selling their yieldco stakes. And clean-energy giant SunEdison Inc., which sought protection from creditors in bankruptcy court a year ago, agreed last month to sell stakes in its two yieldcos.
“A lot of the market cap in solar is tied up in the hardware business,” Andrew Hughes, an industry analyst at Credit Suisse Group AG in San Francisco, said in an interview. “You have to focus on saving the core business first.”
They’re finding mounting appetite from institutional investors for yieldcos’ assets -- wind and solar farms with decades-long contracts to provide electricity to utilities or corporate buyers.
The clean-power industry has transformed itself from a niche market to a mainstream supplier. From almost nothing a decade ago, renewables like wind and solar now supply more than 11 percent of global electricity, and the industry accounted for more than half of all new generating capacity built in the world last year, according to BNEF.
All that construction required financing. Developers relied on yieldcos to help raise cash, which was then recycled into new projects. As the number of generating assets in yieldcos grew, they produced more dividends for shareholders. But they also proved to be almost entirely dependent on their parent companies for growth.
Once the world’s largest renewable-energy company, Maryland Heights, Missouri-based SunEdison succumbed to that thirst for growth. The company filed for bankruptcy protection last April after a global expansion spree that spurred two separate yieldcos and left it with $16.1 billion in liabilities and projects it couldn’t complete.
While First Solar is in better financial shape, it’s facing increasing competition in the solar business. It jointly owns the 8Point3 Energy Partners LP yieldco with SunPower Corp.
First Solar, a maker of solar panels based in Tempe, Arizona, is expecting a second straight annual loss for 2017 while San Jose, California-based SunPower, is headed for its third. First Solar is considering selling its share of the yieldco. While SunPower said it’s looking for a new partner to replace First Solar, it’s also reviewing other options.
“Healthy parents are needed for healthy yieldcos,” Gordon Johnson, a New York-based analyst at Axiom Capital Management, said in an interview. “First Solar and SunPower are not healthy. That is detrimental to their yieldco.”
A Bloomberg index of major solar companies has slumped more than 34 percent in the past year. SunPower was up 7.9 percent Monday to $6.66 at 11:43 a.m. in New York, and First Solar was up 3.3 percent to $27.69.
SunEdison’s yieldcos, TerraForm Power Inc. and TerraForm Global Inc., are the best-known assets on the market. They have managed to avoid being pulled into their parent’s bankruptcy, but still haven’t escaped its shadow. Brookfield Asset Management Inc., Canada’s biggest alternative asset manager, agreed last month to buy TerraForm Global and take a majority stake in TerraForm Power, deals that would provide them stability.
“A buyer like Brookfield is a long-term infrastructure-oriented firm whose primary business is to own these assets,’’ Sophie Karp, a New York-based analyst at Guggenheim Capital, said in an interview. “They tend to be better owners in the long-term versus a developer that has a cyclical business.”
Abengoa, the Spanish clean-energy company that filed for preliminary court protection in 2015, is working on the sale of its stake in Atlantica Yield Plc, the yieldco that began trading in the U.S. in 2014, according to Chairman Gonzalo Urquijo.
Strategic and institutional investors are perhaps the most likely yieldco buyers. They prize wind and solar farms’ stable long-term cash flows.
“First Solar would be taking advantage of strong institutional investor demand for equity stakes in operational solar assets,” said Nathan Serota, a New York-based analyst at Bloomberg New Energy Finance.
Institutional investors are already buying clean-energy companies. Fir Tree Partners agreed to sell its sPower solar unit in February to buyers that include Alberta Investment Management Corp. Exelon Corp. agreed last month to divest a 49 percent stake in a clean-energy portfolio to John Hancock Life Insurance Co.
These deals “may indicate a broader shift in ownership of renewables, away from publicly listed vehicles and toward institutional buyers,” said Swami Venkataraman, a New York-based analyst at Moody’s Investors Service. The sellers “all see better valuation prospects with institutional buyers than in the public markets.”
— With assistance by Rodrigo Orihuela