After the market closed on Monday solar PV makers First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWR) announced that the two companies are in “advanced negotiations” to form a yieldco to which each firm would contribute a portfolio of selected solar generation assets for their existing portfolios. Once the two companies execute an agreement the yieldco will file with the U.S. Securities and Exchange Commission (SEC) for an initial public offering (IPO) of limited partner interests in the yieldco. The announcement concludes that there are no assurances that any of this might happen.
Yieldcos are essentially master limited partnerships that own renewable energy generating assets and operations. There are several already in the renewable energy space and more on the way. The more successful of these new companies are formed from assets contributed by solar plant builder which then retains majority ownership of the yieldco and ownership of the general partner.
In addition to the assets that the yieldcos own they also own the revenue streams from power-purchase agreements generated by those assets. Both SunPower and First Solar have built and installed hundreds of megawatts of solar PV and now that prices have fallen to near-parity with other forms of generation, many jurisdictions are eliminating or cutting back on subsidies and tax credits. Other financing is filling in the gaps, and yieldcos are the latest manifestation of a type of financing that can attract both new projects and new investors.
For companies like SunPower and First Solar the yieldco offers liquidity to pay off debt from building solar plants or to use as financing for the next project. For investors, yieldcos offer a low-risk return from a predictable cash flow based on long-term contracted utility rates from commercial and household customers. Because shareholders are limited partners the distributions are treated like cash distributions from pipeline MLPs and taxed at the shareholder level only, not at the corporate level.
The announcement has given shares of SunPower an after-hours boost of 11.5% to $31.05 after closing at $27.80 in a 52-week range of $22.75 to $42.07.
First Solar shares are up nearly 10% at $54.50 after closing the regular session at $49.64 in a 52-week range of $39.18 to $74.84.