First Solar And SunPower Yieldco Would Represent A Change From The Prevailing Model


First Solar Inc. and SunPower Corp. are working out the details on forming a joint yieldco vehicle to which they each expect to contribute a portfolio of selected solar generation assets from their lists of existing projects.

Upon the execution of a master formation agreement, the parties intend to file a registration statement with the U.S. Securities and Exchange Commission for an initial public offering (IPO). Formation of the yieldco and completion of the IPO are subject to each party's board approval and regulatory approval.

Both companies specialize in large-scale power plant projects. A unique aspect of the proposed yieldco is that its holdings would consist of a mix of photovoltaic technologies: SunPower's silicon PV power plants and First Solar's thin-film PV projects.

Andrew Redinger, managing director and head of KeyBanc Capital Markets' utilities, power and renewables group, has long championed the benefits of the yieldco as a vehicle for monetizing solar energy projects. He says the First Solar and SunPower partnership represents an example of an investment vehicle that is diversifying its technology and geographic footprint and, thus, minimizing risk.

‘The majority of investors are indifferent to the technology as long as there is consistent cashflow,’ Redinger says. ‘It can come from silicon or thin film. It can come from gas. It can come from hydro. It can come from any number of sources. Investors invest in yieldcos because they appear to offer stable, consistent growing cashflow.’

Redinger points out that solar sector yieldcos in existence today usually have a strong parent that was really big in the development business. This standard model, where a developer passes projects to a yieldco subsidiary, perhaps best exemplified by the SunEdison-TerraForm Power relationship, has been the prevalent model.

While the proposed First Solar and SunPower yieldco would also have strong developers as parents, the diversification of projects is the important point. ‘I think they both recognize that the more avenues you can create to build growth, the better you are going to trade,’ he says. ‘Both realize that more is better.’Â

Going forward, Redinger expects to see the yieldco element becoming the driver in a lot of solar project transactions. He is watching a dozen or so yieldcos that could go public this year, and a lot of these are more of a ‘channel partner’ model, wherein an entity with money but no development arm signs up developers to feed the yieldco.

While the yieldco contemplated by First Solar and SunPower doesn't exactly fit this channel partner model, Redinger says it shows how yieldcos of the future are likely to have multiple developers and diverse technologies feeding them projects.

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