A day ahead of SunPower's and First Solar's 2014 earnings calls on Feb. 24 the companies, the two largest vertically-integrated solar companies in the U.S., announced they are partnering to create a yieldco. It's a deal kind of like Ford and General Motors partnering to bring 9 and 10 speed transmissions to fruition together.
Through yeildcos companies publicly offer operating assets through IPOs. The idea is that investors receive a lower-risk investment that offers a stable long-term return. The companies that installed the solar panels and projects can get access to lower interest rate capital to build more projects.
It won't be the first solar yieldco but the partnering of the two companies in this way is unique and it sent Wall Street atwitter. For instance, Raymond James Analyst Pavel Molchanov wrote a research note about SunPower’s earnings in which he said: “Guidance for 1Q is modestly below our model, but more importantly, full-year guidance is no longer meaningful given the company's yieldco decision—a decision that, we are certain, is the only thing the market cares about today.”
“Will this be the granddaddy of all yieldcos?” Molchanov queried. Details are still scant and will remain so until SEC filings for the IPO are made public. “As it turns out, both companies plan to create a yieldco via a 50/50 joint venture—unprecedented collaboration between two of the industry's longest-standing rivals. (Think Coke/Pepsi teaming up…or perhaps Duke/UNC is a better analogy.) Put simply, this is one of the industry's biggest milestones of the past 12 months—and obviously bullish for both partners.”
SunPower, he said, previously hinted at its interest in forming a yieldco, according to Molchanov. First Solar, however, had stated it chose not to do a yieldco. But by coming together, the companies, both of which manufacture, sell and install solar projects, can create a bigger yieldco than SunEdison’s initial 808 megawatt, $577 million yeildco IPO, according to Molchanov.
In SunPower’s earnings call CEO Tom Werner said, “We chose to partner with First Solar because we are the two most respected companies in the solar space with more than 40 years of total experience, 16 gigawatts of installed capacity, and industry leading balance sheets.” He added that each company has a diverse set of projects assets.
“We believe this vehicle will enhance both companies’ ability to finance and construct projects and in turn will drive long-term, stable returns for our shareholders with a joint venture as adoption of renewable energy expands across the globe,” Werner explained. The yieldco, he anticipated, will help the company access lower cost capital and more financing options for future project sales.Tweet