Renewable Energy Financing Hits a Snag
Only a few months ago, it seemed that the renewable energy sector could do little wrong: Stock prices were soaring and money was pouring in as investors flocked to get in on the action.
That is no longer the case. Low oil and gas prices have roiled the energy markets, and the specter of rising interest rates has rattled investors’ confidence in the industry’s returns. Although energy and financial experts say that the basics of the business remain sound, the lofty stock prices have tumbled, leading renewable energy companies to scramble for new approaches to their businesses.
Nowhere has the retrenchment been more acute than in a newfangled financing mechanism called a yieldco. Yieldcos, public companies conceived by renewable energy companies as a way to raise cheaper capital for project development, have attracted billions in new investments.
The yieldcos buy and operate power plants, mainly those that their parent companies develop. The yieldcos then collect the contracted electricity fees and pay the bulk of them out as dividends. With investors hungry for stable returns, energy yieldcos were greeted with enthusiasm through initial public offerings of their stocks over the last year and a half.
Last week, though, one of the most aggressive companies in the sector called a timeout.
SunEdison, which has bought several companies in recent months in a bid to become the world’s largest renewable energy developer, told investors it would not sell any more projects to its yieldcos, TerraForm Power and TerraForm Global, until conditions change. The company said it would trim expenses and streamline operations, including reducing project development by 20 percent, withdrawing from Britain and cutting roughly 15 percent of its work force.
“We need to adjust our tactics, at least in the short to intermediate term,” Ahmad R. Chatila, SunEdison’s chief executive, said in a conference call with financial analysts on Wednesday.
That adjustment is hardly unique to SunEdison, or even to yieldcos. Last month, NRG Energy announced that it would separate its once-heralded green enterprises — which include a home solar division and an electric vehicle charging network — into a separate company with a tight budget. It also said it would pursue a more limited strategy with its yieldco. On Tuesday, Moody’s Investors Service downgraded that company, NRG Yield, saying the 30 percent decline in its share price in recent months would inhibit its ability to raise money for new projects.
Still, executives and analysts say that the industry’s long-term prospects remain sound.
“Since July, the sun has continued to shine and the wind has continued to blow and the performance of the wind farms and solar farms that are in the ground hasn’t changed at all,” said Paul Coster, an analyst at J. P. Morgan. “This is really in large part turmoil of the market’s own making.”