Last month, we reported that vertically integrated solar developer superpowers and competitors First Solar and SunPower were partnering on a solar project YieldCo. The announcement from the rival firms came after several quarters of reluctance (or patience) about entering a YieldCo structure, either individually or jointly.
The companies promised all would be revealed in the SEC S-1 IPO registration document, and today that document landed. It would appear that this is just your regular big, fat YieldCo.
- The initial portfolio is 432 megawatts with interests in "six utility-scale solar energy projects, four of which are operational and two of which are in late-stage construction."
- The utility-scale portion represents 87 percent of the portfolio's generation capacity. The remaining 13 percent is made up of 5,900 residential rooftop installations.
- The residential solar assets "are leased under long-term fixed-price offtake agreements with high credit quality residential customers with FICO scores averaging 765 at the time of initial contract."
- The weighted average remaining life of offtake agreements across the initial portfolio is 21.3 years.
Most of the assets are in California.
The YieldCo has developed right-of-first-offer agreements representing interests in 1,131 megawatts of capacity with assets in the U.S., Chile, and Japan,
In the last 18 months, YieldCos have been formed from the renewable portions of power portfolios at NRG, TransAlta, NextEra, Abengoa, and more recently, SunEdison's TerraForm Power, which was bolstered by its recent acquisition of First Wind.
As Louis Berger, a co-founder of Washington Square Capital Management, has written for Greentech Media, "A YieldCo is a corporate structure where the income component (generated by the underlying assets) is emphasized. YieldCos are similar in concept to a master limited partnership in the oil and gas sector or a real estate investment trust in the real estate sector. All three investments are designed to provide a dependable stream of cash flow to investors. YieldCos use completed renewable energy projects with long-term power-purchase agreements in place to deliver dividends to investors."
GTM recently quoted a financier close to the deal, who said: "I think what drives the deal is the need for cash available for distribution. [...] I suspect each of these companies feels like they are too light on CAFD on their current operating portfolio to do a standalone YieldCo. Also, when you look at the procedures required in a public deal for acquisitions, the arm's-length nature of future purchases means a sponsor company doesn't necessarily control what is bought by the YieldCo and at what price. Why not team up with a competitor and JV a public vehicle? You get it in the market quickly and have an avenue for disposition of your future projects."