First Solar finally puts the ghost of its Ordos massive 2000 MW Solar Farm to rest
July 30, 2014Brazil finally divorces Wind from Solar energy, to encourage solar electricity production
August 1, 2014Yieldcos
TerraForm, the yieldco formed by spinning of the solar assets of SunEdison (SUNE) has seen a tremendous response to its IPO. The company raised more money at a higher price as investors have made a beeline to buy the stock of this company. Yieldcos are a new financing vehicle for solar farms, which have been popularized by NRG Energy who started this trend. Many companies which have large solar assets are thinking of starting such a vehicle.
Solar farms have given good yields over a long period of time, which make them an attractive asset class. Large investors like Warren have already bought massive solar farms to take advantage earlier. As solar energy has matured, it has become easier to finance the solar generating assets. These plants have a predictable life with predictable energy production and revenue generation. The yieldcos are more attractive, as they have a mix of assets which lowers the total risk than in buying a farm.
Note, while the yieldcos have a good yield compared to the low interest rates being offered by bonds in the USA and other developed countries, they are not entirely without risk. The solar assets not only face operational risk, they also face geopolitical and political risks. Spain and Italy have imposed retroactive taxes which have sharply lowered the FIT given to these plants. Czech too has done the same thing. Crimea’s solar plants are in a political limbo after they were annexed by Russia. It is doubtful if the new government will honor the feed in tariffs contracted over long duration to the owners of these solar power plants.
Though risks remain, yieldcos are a win-win product for both the investors and the operators. They lower the cost of capital which makes solar energy cheaper, which will lead to more farms and more yieldcos. Investors not only get a higher yield compared to normal gas or coal assets, but they also get to invest in a green venture. Yieldcos are becoming more and more popular as an asset class and I think they will compete with REITs in popularity in the future.
TerraForm Power, an arm of the solar power company SunEdison that operates over 200 solar power projects in the Americas, said on Thursday that it had priced its initial public offering at $25 a share, the top end of an already raised price range.That meant that TerraForm raised about $500 million from the offering, as well as $65 million from two additional private stock sales conducted at the I.P.O. price.
At the offering price, the solar power project company was valued at about $2.4 billion.Such entities have been welcomed by public investors. One of the first in the most recent batch, NRG Yield, has risen almost 85 percent since making its market debut last summer.In light of that, underwriters this month raised the top end of TerraForm’s price range to $25 a share, from $21.