5 Questions First Solar And SunPower Investors Should Ask About The Coming YieldCo
On March 10, Raymond James released a research note "Our Initial Thoughts on 8point3 Energy Partners" after review of the "Yieldco" IPO filed by First Solar, Inc. (NASDAQ: FSLR) and SunPower Corporation (NASDAQ: SPWR).
The first thing that RJ clarified was the derivation of the name 8point3 Energy Partners LP -- "it refers to the length of time, in minutes, for how long it takes light from the sun to reach the earth."
Organizational & Ownership Structure
Source: S-1 filing
Raymond James - Yieldco Overview
1. How is it possible to have a solar MLP?
The short answer is it's not possible, and the name actually needs more clarification. The note discussed five major questions investors are likely asking:
- RJ explained "[the] 'LP' in 8point3's formal name - as is also the case with NextEra Energy Partners, which went public last year – does not signify MLP status in a tax sense."
- "8point3 is organized as a limited partnership under state law but will be treated as a corporation for federal income tax purposes."
- RJ pointed out that all yieldcos "…generate net operating losses (NOLs) and NOL carryforwards that can be used to offset future taxable income, at least for a period of several years…"
2. Who is in charge?
- "The management structure of this 50/50 JV is about as evenly balanced as possible, making it clear that this is a bona fide partnership of equals."
- "The initial CEO, Chuck Boynton, 'double-hats' as the current CFO of SunPower. The initial CFO, Mark Widmar, is the current CFO of First Solar."
- "After two years, the positions will rotate, i.e., First Solar will get to name the CEO."
3. How big will the yieldco be?
- 8point3's initial portfolio "comprises 432 MW of assets… 262 MW is being contributed by First Solar, and 170 MW by SunPower." (Somewhat less than RJ expected).
- "Above and beyond the initial portfolio, another 1,131 MW of assets will become ready for dropdowns over time."
- "The vast majority of these assets have not yet come online, in some cases not until late 2016 or even mid-2017."
- "8point3 will provide guidance on future cash available for distribution…"
- "In total, the yieldco is targeting annual distribution growth of 12-15% over the first three years."
4. What kind of assets are these?
- "… nearly all of the initial portfolio (377 MW) represents utility-scale projects with power purchase agreements to utilities."
- "The rest – and all of this comes from SunPower – takes the form of aggregated commercial/industrial systems (16 MW) and residential systems (39 MW)."
- "Geographically, the initial portfolio is 100% U.S., though the future dropdown assets have a small international component (Chile and Japan)."
- "Looking at the power purchase agreements, their remaining life ranges from 17.5 years to 28.7 years."
5. How does it compare to the peer group?
- Until the financial guidance gets filled in future S-1s, there is no practical way for [RJ] to project 8point3's cash flow at this point – quite simply, all megawatts are not the same.
- However, RJ mentioned the closest comp would be TerraForm; with Sky Solar, Abengoa Yield, Brookfield Renewable, NextEra and NRG Yield also being in the same industry.
Latest Ratings for FSLR
|Oct 2016||Piper Jaffray||Initiates Coverage On||Neutral||Neutral|
|Oct 2016||Goldman Sachs||Downgrades||Buy||Neutral|
|Sep 2016||Williams Capital||Initiates Coverage on||Buy|
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