UBS Asks: Is It Time To Jump Into Solar?

Shares of Canadian Solar Inc. CSIQ plunged more than 20 percent on Thursday as the company stated it will explore alternative options to the YieldCo if market conditions remain unchanged.

In a report published Friday, Julien Dumoulin-Smith explored if now is a good time for investors to be constructive or stay away.

Dumoulin-Smith noted that in Canadian Solar's case, the company could sell some of its assets to a third party, as it has previously done. Meanwhile, the company suggested that it expects the market to become favorable for a YieldCo launch with the next six months but "are clearly leaving the option open" to forego a YieldCo.

The analyst is expecting other solar firms to avoid pursuing a YieldCo creation in the current environment, given TerraForm Global Inc GLBL and 8Point3 Energy Partners LP CAFD's IPO experience.

"It's clear that sitting on the vehicle for several months is logical solution alongside peers who have delayed further secondary issuances to 2016," Dumoulin-Smith argued.

Related Link: Is A YieldCo Enough For Canadian Solar Investors?

YieldCo Consolidations Likely At Current Levels

Dumoulin-Smith suggested that YieldCo consolidation is likely in the current environment and portfolios without "credible" sponsors (or "distressed" sponsors) are primary targets.

NRG Energy Inc NRG's management already stated it is open to YieldCo consolidation assuming any share-for-share transaction would "tag along" with a development platform that is immediately accretive and prove to be supportive of a long-term growth profile into the next decade.

Dumoulin-Smith argued that an outright sale to another entity with a lower cost of capital is a possible course of action NRG can exploring. The analyst explained that the latest uptick in "cash burn" of $175 million in 2015, the company does not want to see the segment burn cash for another year in 2016.

Bottom line, if successful, a spin or sale of the unit could result in a positive stream of income associated with referral fees from its retail business while NRG would likely retain access to sell-down completed projects to NRG Yield.

Google's New ‘Project Sunroof'

Google Inc GOOG GOOGL recently created a new program that allows residential customers to explore the feasibility of "going solar" for their homes. The new platform utilizes Google Maps and indicates how suitable a roof is and estimates a hypothetical savings.

The new program, dubbed "Project Sunroof" provides an option to have a consultation with various companies such as Sunedison Inc SUNE. The analyst noted that the online space is "key" for solar companies to acquire customers at scale and maintain profitability.

"Akin to the energy retail marketing space, we see the online platform as key to ensuring scale, while also pursuing complementary higher-value customer acquisition channels to maintain overall profitability," the analyst wrote. "Given the substantial investment involved in solar, we suspect consumer education on the process could well drive more of an online process to close customers."

Dumoulin-Smith finally suggested that at first solar companies will see their margins suffer due to the associated costs, a shift online will further consolidate the space.