First Solar and SunPower Exploring New Ownership Strategies at YieldCo 8point3

The two solar heavyweights are looking for new buyers, owners and options in the still-healthy YieldCo.

Eric Wesoff April 07, 2017

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

It was 2014. We were young and hope was in the air. We were experimenting with kale, biracial presidents, and solar project YieldCos.

And this week, First Solar, one of the last solar companies to jump into the YieldCo pool, announced it was looking to get out of the water and sell its 25.4 percent share of 8point3 Energy Partners.

First Solar said it is "committed to utility-scale project development business," but is looking to "fully align resources and capital in support of transition to Series 6 offering." It also reports it is "reviewing alternatives for the sale of its interests" in the YieldCo.

The thin-film solar leader announced it would work with its joint venture partner SunPower in this effort.

For its part, SunPower announced an evaluation of its own strategic options regarding the YieldCo joint venture, stating that its options included a potential replacement partner for First Solar. Tom Werner, SunPower CEO, said, "[W]e believe 8point3 can continue to benefit from owning long-term, high-quality renewable assets."

In 2015, 8point3, the YieldCo formed by vertically integrated solar developer superpowers (and competitors) First Solar and SunPower priced its IPO at $21.00 per share. The shares listed on the Nasdaq under the symbol "CAFD." ("CAFD" stands for "cash available for distribution," so it's an inside joke for people in finance.) 8point3's primary objective is to "generate predictable cash distributions that grow at a sustainable rate."

First Solar said that capital raised by the sale "would support the planned transition to Series 6 production and provide additional funding for the expected deployment of multiple gigawatts of Series 6 capacity over the next several years."

First Solar reports that it intends "to accelerate the return of capital from its systems business by selling projects earlier in the construction phase, including the California Flats and Cuyama projects." If 8point3 is unable to acquire these projects, First Solar expects to sell these projects to third parties.

UBS finds that "in light of FSLR's sizable cash and marketable securities balance (>$2B) as of 12/31, we emphasize the decision to sell the shares would appear largely a reflection on value rather than distress, as well as a reflection of [management's] continued strategic ambitions, as utility-scale efforts slow as well."

The equities analyst adds, "We could very well see a similar story to TERP play out here, where the sponsor outright sells the whole subsidiary to a new parent sponsor (Brookfield in this instance) rather than just selling down the strategic sponsor's interest."

8point3 Energy just announced its financial results for its first fiscal quarter.

Exceeded Q1 2017 revenue, net loss, adjusted EBITDA and CAFD guidance
Completed acquisition of minority stake in First Solar's Stateline project
Declared Q1 2017 distribution of $0.2565 per share, an increase of 3.0 percent over the Q4 2016 distribution
For the first quarter of fiscal 2017, 8point3 Energy Partners reported revenue of $9.9 million, net loss of $5.3 million, adjusted EBITDA of $13.1 million and CAFD of $22.1 million.
2017 financial guidance remains unchanged, reiterates fiscal year 2017 distribution growth of 12 percent

"Given our cash flow profile, we are well positioned to achieve our guidance for the year as well as reach our 12 percent distribution growth rate for 2017," said 8point3 CEO Chuck Boynton.

The YieldCo's fiscal year 2017 guidance remains unchanged: revenue of $63.3 million to $66.7 million, net income of $27.0 million to $32.6 million, adjusted EBITDA of $106.5 million to $113.1 million, and CAFD of $91.5 million to $101 million.

It is significant that 8point3 has not altered its 2017 financial outlook in light of First Solar's announcement.

Oppenheimer notes, "CAFD posted results modestly ahead of Street expectations and maintained FY guidance as the company’s portfolio continues to perform well. We view the news that FSLR will be exploring strategic options for its stake as not entirely surprising, as the company looks to focus more on equipment manufacture and opportunistic project development. We believe SPWR may be able to find a partner that is more closely aligned with the goals of CAFD and brings additional strategic resources to support growth."

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