The Brewing 'YieldCo Party' In The Solar Industry

UBS commented on the U.S. solar and alternative energy industry Tuesday.

Analysts led by Julien Dumoulin-Smith noted that Canadian Solar Inc. CSIQ was “pursuing an OECD YieldCo, to be launched at the end of 2015/ beginning of 2016, following on the heels of its recent acquisition of the Recurrent development platform; this would be the first pure-play upstream manufacturer to move into the YieldCo niche.”

Dumoulin-Smith said that the company’s strategy to integrate downstream into development rather than further upstream into solar manufacturing had bucked the trend among its peers of photovoltaic manufacturers.

The analysts maintained the “view that the poly (Solar PV) manufacturing space is a high risk undertaking for module manufacturers, and while direct project ownership downstream is highly capital intensive, this appears to be the primary source of remaining profitability.”

Dumoulin-Smith felt that “competition to develop high-quality solar assets will be fierce, especially in the US” with both Canadian Solar’s OECD YieldCo and the First Solar, Inc. FSLR and SunPower Corporation SPWR joint-YieldCo, 8point3 Energy, expected to come on line in 2016.

Trina Solar Limited (ADR) TSL and JinkoSolar Holding Co., Ltd. JKS also recently “announced plans to create their own YieldCos which would increase competition for China-based projects, with Canadian Solar “noting that a China-held YieldCo would likely follow an OECD vehicle.”

Dumoulin-Smith saw the “increased competition having the potential to drive development margins and PPAs down as the push to 'own' the project; we see a similar trend emerging among utilities, marketers, and IPPs alike seeking growth in the sector."

The analysts suspected that companies "with scale and real depth in offtaker relationships will survive and thrive.”