Solar Companies Unlock Huge Value with Potenial YieldCos

Earnings season is starting to come to an end for the major solar companies, and one topic is on every investor’s radar: YieldCo’s. No matter how many gigawatts are in your pipeline, or how many megawatts of projects you have on your balance sheet, all firms are eyeing this strategy to maximize shareholder value. Some firms are better positioned than others, depending on their size and geographic mix as well as the quality of the projects in question.

For those of you that are new to YieldCos, it’s a wholly or partially owned subsidiary of the parent firm, that owns and operates solar projects, selling the electricity to the utilities. By selling the projects to the YieldCo, it allows the parent firm to put cash on their balance sheet, while still enjoying the long term benefits of ownership of the YieldCo selling electricity through predetermined contracts. As we’ve seen, dropping an asset into a YieldCo, and forgoing the quick buck of selling a project to a third party equates to increased multiples on shareholder value. Why sell something for $1 Billion today when it can be valued at $2-3 Billion in a YieldCo six months from now? Exactly.

Last year, SunEdison successfully launched TerraForm with an IPO price of $25, which now trades at $35, and has become the one of largest renewable power companies in the world. Right now there are at least five companies that have realistic potential of launching a YieldCo in 2015. First Solar and SunPower recently filed their YieldCo, called 8point3 Energy Partners with the SEC, looking to raise $50mm. Canadian Solar and JinkoSolar could be ready mid-year, and Trina Solar might be able to squeeze one in by year end. Canadian, Jinko, and Trina are looking to form wholly owned YieldCos, while FirstSolar and SunPower are splitting ownership. It will be interesting to see how the decision making of the latter plays out, and whether or not the average investor can wrap its head around the company’s share structure.

Initially 8point3 will hold 432MW of projects, with over half currently not in operation. As of right now, only the SunPower residential portfolio, and First Solar’s Maryland and Solar Gen 2 projects are operational. There are an additional 1.1GW of projects where 8point3 will have the “right of first offer”, should the parent decide to sell.

Compared to the 808MW that was rolled into TerraForm, this offering seems increadibly light, and I wouldn’t be surprised to see more projects added before the IPO is complete. As for the $50mm that 8point3 is looking to raise, this will be amended and raised as they move through the IPO process. TerraForm initially filed with $50mm, and ended up raising $577mm in July 2014. The following January another $350mm was raised. With these kinds of numbers floating around, it’s clear to see why solar companies are looking to the YieldCo model to increase shareholder value.

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