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Analysis: SunEdison heading for renewables 'supermajor' status

UNITED STATES: SunEdison has been on an acquisition spree and manages a huge pipeline through its yieldcos. But is it growing too fast to sustain future success?

Asset: SunEdison is buying Globeleq Mesoamerica Energy, which owns online capacity in Honduras
Asset: SunEdison is buying Globeleq Mesoamerica Energy, which owns online capacity in Honduras

SunEdison is arguably the world’s fastest-growing renewables development company. Originally a solar manufacturer and developer, the Missouri-based company is on a high-profile international spending spree with purchases of both wind and solar developers and of operating assets.

Named after US inventor Thomas Edison, SunEdison claims an 8.1GW global wind and solar pipeline, 5.6GW in backlog and 1.9GW under construction — compared with just 475MW under construction a year ago. The company has more than 3,500 employees.

"We’re just seeing the first of the renewables supermajors, and SunEdison will be at the top," Julie Blunden, SunEdison’s chief strategy officer, told Bloomberg recently, borrowing a term for the oil sector’s handful of largest publicly owned companies. As the renewables industry matures, consolidation is accelerating.

Once in operation, SunEdison typically sells its projects to its yieldco subsidiaries — TerraForm Power and the new TerraForm Global — the latter was launched in early August, and both need steady streams of solid projects. The parent company retains management and development assets, said Kurt Adams, SunEdison’s chief development officer. In North America, about half of the company’s business is wind.

SunEdison’s appetite is helping raise purchase prices for operating assets, a boon since it is often more difficult to raise development capital. Greater access to development capital will in turn help spur more wind and solar projects.

But the major challenge for SunEdison, buoyed by cheap capital and tax equity, may be its own growth. "There’s a lot of discussion about SunEdison growing too fast… [and there’s] doubt about their emerging market yieldco," said Jacqueline Lilinshtein, an analyst at Bloomberg New Energy Finance. "It’s too early to tell."

"I think they are growing too fast," a financial analyst said on condition of anonymity. "Their strategy is: cast a wide net and hope something catches. But they’re buying a lot without proven results and in difficult markets." Asked for comment, SunEdison’s Adams declined. At the time, SunEdison, which operates from California, was in a quiet period and about to announce its earnings.

In the second quarter, SunEdison’s net loss grew more than five-fold to $263 million, or $0.93 a share, from a $41.2 million loss a year earlier, or $0.16 per share. Sales were up 5.6% to $455 million. SunEdison said it expects to complete 2.1-2.3GW this year, and 4.2-4.5GW in 2016, up 50% from its previous forecast.

When the results came out in early August, its stock unexpectedly dropped 25% by day’s end in New York — its worst drop in nearly 14 years. With electronic trading, markets can be spiky, cautioned Debra Fiakas, co-founder of Crystal Equity Research. As an investment, SunEdison has held up well, she said.

"We see the precipitous drop as reflecting a fundamental misunderstanding of the capital mechanics for growth execution as well as potential pause from management’s overconfident tone," Jeffrey Osborne, an analyst at investment banking firm Cowen & Co, wrote in a note. SunEdison’s results were actually strong, he said, with better-than-expected growth and megawatt deployment.

Shopping spree

Since SunEdison launched TerraForm Power in July 2014, its purchases have included numerous wind deals: US developer First Wind for $2.4 billion; Atlantic Power Corp’s 521MW portfolio for $350 million; a joint venture with Gamesa to develop up to 1GW, with a focus on India and Mexico; and 930MW of projects from Invenergy for $2 billion.

SunEdison is buying India-based Continuum Wind Energy, which has some 1.4GW in development, under construction or online in India; and Costa Rica’s Globeleq Mesoamerica Energy, with its 243MW in operating projects, 80MW under construction and 246MW in development across Central America. SunEdison — formerly known as MEMC Electronic Materials — also part-owns Deepwater Wind, the developer behind the US’s first offshore project, Block Island.

In June, GE invested $25 million in TerraForm Global, which raised $675 million in its initial public offering in August, when SunEdison also said it would issue $800 million in green bonds. TerraForm Global, focused on emerging markets, says it will own 1.4GW of capacity by year-end, almost 60% of it wind.

And in August, a $1 billion clean-power fund through Goldman Sachs and a number of banks was announced for SunEdison.

Purchase plans

The parent company’s strategy is to be diverse, geographically and in its business, which includes transmission and storage. SunEdison is technology neutral. Buying entire companies, such as First Wind, rather than just its assets, gave SunEdison access to the company’s knowledge and management, said Adams. This was SunEdison’s first foray into wind.

New acquisitions are expected to include wind and solar, Adams said. Outside North American and Europe, other wind markets being targeted are: Brazil, India, China, Honduras, Costa Rica, Uruguay, Turkey and South Africa, he added. Investments in renewables technologies other than solar and wind are expected to follow soon, according to media reports.

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