Once the hottest thing in renewable energy, yieldco market capitalizations have suffered over the last nine months due to multiple factors including trouble at SunEdison and its yieldco TerraForm Power. Yieldco stock may also have fallen victim to larger market issues including a declining investor interest in the energy sector due to falling oil prices and a general market malaise.
Despite this a number of yieldcos continue to show strong fundamentals, including energy giant NRG Energys NRG Yield. NRG Yield published enviable quarterly results this morning, including beating its guidance to deliver $179 million in cash available for distribution (CAFD), $55 million in net income, and a dividend that grew to $0.215 in December 2015.
Utility-scale solar currently makes up only 11% of NRG Yields operating electricity generation assets, with the remainder split between wind and conventional generation. However, NRG Yield notes that solar projects including a newly acquired 25% share in the 550 MW Desert Sunlight projects boosted its operating result and CAFD.
During the call NRG Yield Interim CEO Mauricio Gutierrez also announced that the company would be shifting $50 million of its purchase commitments from NRGs residential assets through the former Home Solar division to business renewables. However, NRG Yield is not fully backing out of residential solar, as the company still has $100 million committed to acquiring leased solar projects from NRG.
NRG Yields Right of First Offer (ROFO) projects contain many more renewable energy assets, including NRGs stakes in the massive Agua Caliente and California Valley Solar Ranch PV projects as well as the Ivanpah concentrating solar power (CSP) project. The shares in these assets alone would nearly double the MW of solar owned by NRG Yield, before the $250 million committed to residential and business solar.
The company has used up much of its available cash buying up assets. Despite raising over $1 billion through a follow-on offering of Class C Common stock, convertible notes and tax equity, NRG ended the year with only $292 in total liquidity, including $111 million in cash and cash equivalents.
However, NRG Yield does not expect that this will impact its ability to acquire distributed solar assets. "We’re confident that we have the excess liquidity to complete the remaining drop-downs under our partnerships with NRG for distributed solar and home solar," stated NRG Yield Chief Financial Officer Kirk Andrews.
NRG expects ongoing growth in operating results, CAFD and dividends, which will reach $0.225 per share this quarter. NRG Yields stock rallied 5% this morning after the announcement of results, however at just above $13 NRG Yield’s stock price is less than half of what it reached at a post-IPO high last May.
During the call CEO Gutierrez addressed the disconnect between the companys strong performance and stock performance. Despite much of the uncertainty that continues to exist in the capital markets, we continue to be excited about the prospects of NRG Yield in creating value for our shareholders, he noted.