UBS Asks If More YieldCos Will Enter The Market
In a report published Monday, UBS analyst Julien Dumoulin-Smith commented on the U.S. solar sector, noting that TerraForm Power Inc (NASDAQ: TERP)/ Sunedison Inc (NYSE: SUNE) continue pursuing M&A activity, many competitors have struggled to match the pipeline discernibility.
Dumoulin-Smith stated that Pattern Energy Group Inc (NASDAQ: PEGI) highlighted an additional 526 MW of ROFO ("right to offer") assets during its investor day and provided expectations surrounding the timing of their dropdowns as well as the locations of their pipeline.
The analyst continued that Pattern Energy Group's move to increase its visibility was "likely taken up to appease investors and that he sees YieldCos "navigating the thin line" regarding how much information to disclose about their pipelines.
"We think the ability to meet guidance is important given the straight forward YieldCo structure, as we expect missing targets would be damaging from a valuations perspective," Dumoulin-Smith wrote. "But, with pressure on YieldCos to disclose pipelines and dropdown timelines in as much detail as possible, many of the companies must find the right balance, even if that means holding back some information in order to protect against falling short of guidance."
The analyst pointed out that this is "clearly" reflected by the fact that there are no predominantly residential solar players with YieldCo structures, many groups understand the lack of visibility residential sales provides and that it is difficult to attract long-term investors.
Dumoulin-Smith also noted that the solar sector as a whole continued its upward trend into a "robust deployment" outlook through ITC (Investment Tax Credit) and PTC (Production Tax Credit) expiration. The analyst added that near-term datapoints "should be constructive," but the trend abroad is the bigger ‘ask' for solar investors.
Looking forward, with the TERP Global IPO likely a week (or more) away, the bottom half of 2015 is likely to revolve much more around the international opportunity as companies diversify development exposure away from the U.S.
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