Mon, Sep 21, 2015 page15

• Yieldco overreach creates concern at solar companies

  RECONSIDERATION: Firms such as Canadian Solar and Trina Solar are rethinking their options for attracting investors to their portfolios and how to finance more cheaply

  • Bloomberg
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  When SunEdison Inc chief executive officer Ahmad Chatila sold shares in his second power-plant holding company to the public in July, he already suspected the offering might not draw enough investors.

  He was right. TerraForm Global Inc declined US$1 in its trading debut and has never risen above its US$15 initial public offering (IPO) price. The Maryland-based company on Friday rose 1 percent to US$9.03 at the close in New York.

  TerraForm Global’s weak showing is a sign of waning interest in this model: companies known as yieldcos that are formed to own and operate power plants. Since then, renewable-energy companies have shifted their strategies for tapping into the same kind of low-cost financing provided by these publicly traded ventures.

  “We tried to do transactions the market couldn’t absorb,” Chatila said. “It started over a year ago but we got the brunt of it over the last two months.”

  Many yieldcos that soared in their initial offerings have since tanked, including TerraForm Global’s sister company, TerraForm Power Inc, which closed on Friday at US$21.58, down from its US$42.15 peak in April and its US$25 IPO price in July last year.

  NRG Yield Inc, formed in 2013 by the biggest US independent power producer NRG Energy Inc, has slipped 35 percent this year, and Abengoa Yield PLC has fallen 33 percent since its IPO at US$29 in June last year.

  The turmoil has prompted Canadian Solar Inc (阿特斯陽光電力) and Trina Solar Ltd (天合光能) to consider different ways to attract investors to their power-plant portfolios and use the proceeds to finance projects at lower costs.

  “Ninety days ago, investors had a very different attitude toward yield companies,” Nat Kreamer, chairman of the Solar Energy Industries Association, said on Wednesday on the sidelines of an industry conference in Anaheim, California.

  Selling shares of renewable energy generators as a way to reduce financing costs is not as compelling, and “private equity is now cheaper than yield companies,” he said.

  Yieldcos are designed to buy power plants from their parent companies, providing fresh capital to the developers to build more projects. The yieldcos collect revenue from selling electricity, and use it to fund more acquisitions and make dividend payments to shareholders.

  At least 15 yieldcos have held IPOs since early 2013, raising more than US$12 billion, according to Bloomberg New Energy Finance.

  Because the model relies on consistent growth, there is concern the boom in yieldcos has created too much demand for new clean-power plants, driving up prices, NRG Energy chief executive officer David Crane said last month.

  Canadian Solar chief financial officer Michael Potter said the firm is still planning to form a yieldco, despite the recent market volatility.

  “We believe a yieldco, at the right price, will deliver the best value for our shareholders,” Potter said in an e-mail on Wednesday.

  However, Trina Solar on Sept. 11 announced plans to form an alternative, where it would sell shares to the public in its portfolio of power plants, a structure it called a “growthco.”
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