SunEdison project business booms amid a changing course


SunEdison is certainly not a boring corporation. After pioneering solar yieldcos, the company became the world's largest renewable energy developer with the acquisition of First Wind, while it deepens its presence in the U.S. residential market with the pending acquisition of Vivint Solar.

However, this has all come at a cost, with SunEdison taking a beating in the stock market as investors expressed skepticism about the company's rapid expansion. In October SunEdison announced a shift in strategy, halting yieldco drop-downs, restructuring the company and laying off 15% of its workforce.

“Right now I would like the company to become a lot more boring, building projects and generating cash flow,” explained CEO Ahmad Chatila in SunEdison's Q3 results call.

However, this shift to a more boring company had not yet arrived in Q3 results. SunEdison completed a record 640 MW of wind and solar projects during the quarter, above the high end of its guidance.

Even more impressive is the 2.9 GW of projects that SunEdison has under construction. This is nearly four times the volume the company had under construction two quarters ago, which was a record level at the time.

This all comes at a cost. SunEdison reported US$476 million in net sales, but an operating loss of $250 million and a net loss of $328 million.

Some of this is due to SunEdison's strategy. A shift to more third-party sales only began during the third quarter, with 105-106 MW of projects were sold to third parties, as opposed to 534 MW which were retained.

One-time expenses also played a role. SunEdison's operating expenses ballooned to $361 million during the quarter, however $175 million of this was due to restructuring, acquisitions and IPOs, and other one-time expenses.

Among these expenses is also the impact of the decision to exit the UK market after the government announced drastic feed-in tariff cuts.

SunEdison is not the only company in the U.S. solar industry that is shifting strategy to a greater emphasis on profitability and raising cash. During its Q3 call, SolarCity announced that it was aiming for slower growth with goals to lower costs and become cash-flow positive.

SunEdison has plenty of cash to support its development activities in the interim as the company held $1.4 billion in cash at the end of the third quarter. It also maintains a healthy pipeline, which remained relatively flat during the quarter at 5.5 GW of contracted projects, despite 1 GW of projects starting construction.

SunEdison CEO Chatila says that he is satisfied with this, and the company's 8 GW pipeline. “I can fill up the next two or three years without doing anything,” notes Chatila. He notes that the company has become a lot more selective about which nations it enters and which projects it develops.

And while SunEdison is focusing on selling more projects to raise cash and improve margins, it is also making heavy use of a warehouse to hold projects. This gives the company the option of either selling these projects later, or moving them to yieldco TerraForm Power.

For the future, it is a distinct possibility that SunEdison's acquisition of Vivint Solar may close in the first quarter of 2016 instead of the current quarter. The fourth quarter will already be quite busy, with SunEdison expecting to complete 833-933 MW of projects, and retain 515-590 MW of these.

With 58% of SunEdison's pipeline in North America, this rapid pace is expected to continue throughout 2016 during the rush to complete projects before the ITC drop-down. And while Chatila has expressed skepticism about the U.S. utility-scale market in 2017, he says that he expects the company to shift to greater construction of wind projects in 2017 and 2018.

SunEdison also retains legacy manufacturing, including polysilicon production utilizing various technologies. Overall the company's materials business produced losses during the quarter. Chatila notes that currently the company is bound by contracts and cannot exit certain facilities, but gave a thinly veiled notice that SunEdison will seek to sell or close certain factories in future quarters.

“Right now I have no choice,” noted Chatila on the conference call. “Soon I will have a choice.”

Overall, SunEdison Chief Financial Officer Brian Wuebbels emphasized that the company's financials remain strong, and despite the restructuring the company is still growing rapidly.

One thing is certain, and that is that despite the stated wishes of CEO Chatila, SunEdison remains anything but boring.

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