Cohocton Wind Watch: SunEdison’s Brave New World: YieldCos, First Wind
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Wednesday, February 25, 2015

SunEdison’s Brave New World: YieldCos, First Wind

SunEdison has gone through a lot of changes in the past year, diversifying beyond solar power and into wind power through its $2.4 billion acquisition of First Wind, and beyond being solely a developer of projects for others into owning its own projects through its YieldCo, TerraForm Power.

On Wednesday, SunEdison reported fourth-quarter and fiscal year 2014 results that helped illustrate how these shifts are affecting the company’s bottom line -- and laying the groundwork for matching global demand for renewable energy.

SunEdison reported fourth quarter non-GAAP revenues of $625.5 million and a net loss of $42.7 million, or 16 cents per share, compared to revenues of $540 million and a net loss of $181.8 million, or 68 cents per share, in the fourth quarter of 2013.

On a GAAP basis, the company reported fourth-quarter 2014 revenues of $610.5 million and a net loss of $242.1 million, or 89 cents per share, compared to fourth-quarter 2013 revenues of $681.2 million and a net loss of $283.4 million, or $1.06 per share.

These results didn’t match analysts’ fourth-quarter targets of revenues of $683.8 million and a loss of 32 cents per share, pushing SunEdison’s share price down slightly in after-hours trading Wednesday. But shares had regained those losses in early Thursday trading -- perhaps because of the rosier picture painted by the company’s record-setting 2014 project growth, as well as its backlog and pipeline of projects.

SunEdison reported a record 1,048 megawatts of new projects in 2014, up 506 megawatts, or 94 percent, from the previous year. That included 783 megawatts of projects retained on its balance sheet through the spinout of TerraForm this summer, and projects “dropped down” into that YieldCo since then, SunEdison CFO Brian Wuebbels said in a Thursday morning conference call. TerraForm Power reported fourth-quarter 2014 net sales of $42.6 million, up from  $4.5 million in the same quarter in 2013.

The YieldCo structure allows SunEdison to retain the ongoing income from projects and attract investors looking for steady income and dividends, rather than the revenues from projects developed and sold to third parties. Other companies have set up YieldCos such as NRG Yield, NextEra Energy Partners, Abengoa Yield, and TransAlta Renewables.

But SunEdison, unlike these other companies that have created their own YieldCos, has not reported a profitable quarter on a GAAP basis since 2011. The company’s vertically integrated silicon and semiconductor manufacturing and solar project development business model, created when U.S. semiconductor manufacturer MEMC bought SunEdison in 2009, was hit hard by ongoing price pressures, and the future worry of losing the U.S. federal Investment Tax Credit (ITC) for solar projects in 2017.

SunEdison reported 467 megawatts of projects under construction at the end of the fourth quarter, and a pipeline of 5.1 gigawatts, with 973 megawatts of gross additions in 2014. Here’s a breakdown of those projects by geographic region and size, along with a chart that shows the growth of projects retained on the company's balance sheet.



“As we continue to see the acceleration of our yield vehicles, you’re going to see the plan to move further and further to retaining more projects and selling fewer projects,” Wuebbels said.

SunEdison is still growing its utility-scale and distributed solar business in North America, CEO Ahmad Chatila said in Thursday’s call. Indeed, SunEdison has quietly launched a residential solar loan program called SolarOwn. At the same time, “We continue our strong momentum in emerging markets,” and “we expect these markets to outpace the overall markets in the coming years,” he said.

In particular, “when Europe went through its challenges, we refocused our efforts on LatAm,” he said, using shorthand for Latin America, where SunEdison has taken the lead in terms of operational capacity, according to GTM Research’s Latin America PV Playbook. SunEdison has also submitted a confidential S-1 filing to create a second YieldCo, focusing on emerging markets in Africa and Asia, he said.

As for First Wind, it brought 1.6 gigawatts of pipeline and backlog to the company’s fourth-quarter results, as well as an additional 1.6 gigawatts of projects eligible for U.S. Production Tax Credits (PTC), Wuebbels said. First Wind is also the 11th-largest solar PV developer in the U.S., with a total of 468 megawatts in operation and in development, according to GTM Research's U.S. Utility PV Market Tracker.

SunEdison has also set up a warehouse facility, which combines $500 million in equity financing with $1 billion in long-term and revolving debt, to finance construction of both wind and solar projects, Wuebbels said. “This is only the first of several innovations we’re working on to create additional sources of growth capital beyond capital markets while continuing to drive down the cost of capital for our capital business,” he said.



Fourth-quarter non-GAAP gross margins were 10.8 percent, down from the third quarter’s 15.8 percent but up from the 4.9 percent gross margins of the fourth quarter of 2013. As this chart indicates, the company’s margins have been dragged down by the poor performance of its silicon materials segment.


Other highlights of the quarter included:

  • An average cost of solar installations of $2.97 per watt, on the high side of the company’s projections for the year
  • Fourth-quarter capital expenditures of $47.8 million, of which $23.1 million was incurred in the semiconductor materials segment
  • $158.9 million in capital expenses incurred to secure the wind turbines expected to result in 1.6 gigawatts of PTC-eligible wind projects
  • $304.3 million spent on acquisitions

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