31 May 2016



Poor results raise spectre of SunEdison contagion

Author: Jason Deign, Solarplaza

Investors have voiced concerns that SolarCity could experience a SunEdison-style meltdown after the San Mateo, California, based installer posted a larger-than-expected loss this month. “SolarCity has very little wiggle room in funding its operations and is reliant on continual new financing from a fairly small number of sources, just like SunEdison was,” wrote solar investor Travis Hoium on the investment site The Motley Fool.

“Now it's begun a trend of missing its own installation guidance, its sales costs are out of control and management says it still wants to accelerate growth in the near future.”

SolarCity this month posted an 82% year-on-year increase in revenues but lost money for the thirteenth quarter in a row, as well as lowering its forecast for installations from 1.25 GW to 1.1 GW in 2016. Elsewhere Vivint Solar, which is locked in litigation with SunEdison after the latter backed down on acquisition plans, posted a USD$69 million loss for the first quarter of 2016, worse than expected. Revenues were also below expectations.

A third solar giant, SunPower, also disappointed analysts with higher-than-anticipated first-quarter losses, although Baird Equity Research remained bullish on the company’s prospects. Finally, Yingli Green Energy Holding, one of the world’s leading PV panel manufacturers, is not far off becoming a penny stock with shares trading under $5, down from around $60 two years ago.

“As of May 13, 2016, the consensus forecast amongst five polled investment analysts covering Yingli Green Energy Holding advises that the company will underperform the market,” warned the Financial Times.

Why so many listed solar firms should be posting disappointing results is “a bit of a mystery,” said Josefin Berg, senior analyst for solar demand at IHS Technology.

In theory, the solar industry is set to have one of its best years ever in 2016, with IHS forecasting a 17% increase in installations, taking global PV capacity up to 69 GW. “It’s a big year for solar,” admitted Berg, “but competition is high.”

Berg said which companies were going to benefit most from the current boom in installations might not become clear until the end of the year. Furthermore, there is little data on the performance of privately held PV companies such as Sungevity and Verengo Solar.

For now, Berg said, it was perhaps to be expected that downbeat reports from listed companies were attracting negative investor sentiment in the wake of SunEdison’s collapse, even though “SunEdison is a pretty special instance.”

Solar investors tend to have a herd mentality, she noted, and worries over a large corporate failure such as SunEdison “can have an impact” on other stocks.  

Among traded companies, however, the main concern is for SunEdison’s yieldcos, Terraform Power and Terraform Global, which have moved to quell fears that they could be affected by the developer’s bankruptcy. “The fall of SunEdison is not a huge fracture to the solar industry, but may prove to be an ongoing affliction to its two yieldcos,” confirmed Tyler Ogden, research associate at Lux Research in Boston, USA.

“The yieldcos are facing two threats: the sale of projects currently in construction by SunEdison removes assets from the yieldcos, while the fall of SunEdison requires that they build new partnerships to ensure an adequate growth pipeline.”

As a result, he said: “SunEdison's failure does not question the legitimacy of the solar industry, but accentuates the vulnerability of the yieldco model. While SunEdison was a sizable developer, seeking to further expand its reach in applications, markets and technologies, there is sufficient proficiency in the industry to fill its place.

“Looking to its past projects, they are in the ownership of either Terraform Global or Terraform Power and operation will continue under these companies. However, a sizable portion of the yieldcos' assets came from SunEdison's pipeline.”

The yieldcos have had to seek extra time to file their 2015 annual reports because they need input from SunEdison, which has missed its own report-filing deadline. The delays could put the yieldcos at risk of failing to meet the conditions of their credit lines. Terraform Power had found “material weaknesses in internal controls over financial reporting,” Bloomberg reported.

Meanwhile, financial blogger Naman Shukla noted that financing arrangements for three TerraForm Global power plants in India “include provisions that offer owners the right to hasten debt maturity just because of SunEdison's bankruptcy. If debt is hastened, the company will face severe problems regarding cash, as no one knows about TerraForm’s capacity to cover the debt hastening.”

Concerns over the yieldcos may yet prove to be unfounded. TerraForm Global’s exposure to SunEdison, for example, is arguably less than might be expected. SunEdison is only responsible for 270 MW out of the yieldco’s 841 MW portfolio, TerraForm Global sources confirmed.

Jenny Chase, solar insight manager at Bloomberg New Energy Finance, told Solarplaza that the impact of SunEdison’s collapse “depends on whether you are a Terraform shareholder or a SunEdison one. SunEdison has $16 billion in liabilities and, hopefully for the shareholders in the Terraforms, no claim on fully commissioned assets already transferred,” she said.

“Meanwhile SunEdison has a messy, incomplete pipeline which will need to be sorted through for assets worth buying before it can be valued.” Furthermore, said Jigar Shah, SunEdison’s founder and currently president of Generate Capital: “All of the pipeline has an expiration date now.”

Shah pointed out that SunEdison had begun trying to divest parts of its development portfolio back in October last year. “They wanted that money to meet some of their near-term cash trends,” he said.

In the current climate, what remains of SunEdison may be reduced to acting as a broker to sell off remaining pipeline assets. However, Shah insisted: “The solar industry in itself is not negatively affected by this. It will have the best year ever.”

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