Analysts give First Solar-SunPower yieldco deal thumbs-up


Market analysts at Deutsche Bank have described plans by First Solar and SunPower to launch a joint yieldco as "a significant positive."

In a report following the companies' Monday announcement, Deutsche Bank Market Research analysts Vishal Shah and Jerimiah Booream-Phelps say that while the companies have yet to release specific details of their respective contributions, a joint yieldco decision "is probably the best strategy for both companies, in our view. This decision not only makes the potential yieldco one of the best growth stories out there, but it also offers the entity strong development capability in utility scale/commercial markets."

The analysts point out that SunPower has discussed its approximately 640 MW of potential yieldco assets consisting of 245 MW operating, 183 MW in construction and 212 MW contracted. The company, the researchers add, expects these 640 MW to yield $90 to $100 million of unlevered cash, or $70 to $80 million of cash available for distribution (CAFD) at an 85% payout ratio. Furthermore, SunPower has said it could reach more than 4 GW of portfolio projects by 2019.

First Solar, meanwhile, has not provided specific details on what projects it would drop into the yieldco, but Shah and Booream-Phelps say that as of the third quarter of last year, the company has had 755 MW of unsold projects with a PPA slated for completion in 2015, and 744 MW of projects by 2016, for a total of approximately 1.5 GW of projects currently unsold with a signed PPA by the end of 2016.

The analysts reckon SunPower's 640 MW and First Solar’s 755 MW equal about $2.8 billion ($1.4 billion each) of equity value assuming a 50-50 split, $0.117 million per megawatt and an 85% dividend payout ratio at 5% yield.

In addition, First Solar could have a pipeline of unsold projects with PPAs as high as 1.9 GW, including the ability to contribute about 1.5 GW to the yieldco by the end of 2016.

As a result, the Deutsche Bank analysts say the companies' yieldco plan "is a significant positive in our view. … Most importantly, both companies have sufficient unsold projects that can be added into the yieldco, thereby providing strong visibility into multiple years of double digit CAFD growth."

First Solar, they add, also has a strong balance sheet and SunPower enjoys the financial backing of its parent company, French oil and gas giant Total.

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