SunEdison retreats in its ambitious goals as stock crashes 70% on risk aversion – plans job cuts and cancels acquisitions
Indian government predicts an incredible 10859 MW of solar capacity installation in FY16, up from just 1000 MW in FY14
October 9, 2015Utility solar power costs in USA drop by an astonishing 70% in the last 5 years to just 5c/kWh – Even sharper cuts in the offing
October 13, 2015SunEdison cuts jobs and cancels Acquisitions
SunEdison has been powering ahead in the last one year as the biggest pure play renewable energy developer, buoyed by the success of its successful yieldco listing and incredible growth in its pipeline of solar projects. It has been gaining success in different geographies and showing great revenue growth. This has made the company confident enough to not only buy large project portfolios, but also go for outright company multi-billion dollar acquisitions. However, the recent energy sector selloff has put paid to its ambitions. The stock price has been hammered, as investors grew wary about how the company would fund its massive acquisitions. The stock price has fallen sharply as debt concerns assumed centrestage. The company has now been forced to lower its ambitions, as stock prices play an important role in its business model. The company uses its yieldco to drop down completed RE projects and a low stock price makes that difficult. Its second emerging market yieldco has proved to be a failure as its stock price is down 50% from its IPO.
The company is now taking a number of steps to lower its risk profile and debt burden. While there is nothing fundamentally wrong with the company, the market is not ready to support its rapid growth rate. RE being a capital intensive business, companies have to turn to the market repeatedly in order to fuel their growth. Debt has become expensive for the company as energy bonds have fallen sharply with the fall in the oil price. While there is no direct relationship between solar and oil prices, the correlation between the stock prices is extremely high.
SunEdison’s acquisition of a Latin American portfolio of RE projects has been cancelled and the company is also letting go of 15% of its employees in order to lower its cost structure. The company will also in all probability sell some of its projects, to improve the cash flows at the expense of margins. SunEdison has managed to gather a lot of funds by selling preference shares and partnering with banks. Hopefully all these measures will allow the company to get back on track. The markets have become risk averse in recent days and SunEdison has been forced to course correction. Growth is not enough for investors to compensate for the lower return ratios. The TerraForm yield ratio has doubled over the last couple of months due to the selloff. This makes it tougher for its yieldcos to raise funds at a cheap enough rate.