The two companies intend to file for an IPO once the master formation agreement is signed
First Solar and SunPower announced Monday that they were in “advanced negotiations” to form a YieldCo vehicle. The YieldCo will hold some of the solar power-generating assets from each company’s existing portfolio. Following the announcement, First Solar shares jumped 8.94% to $54.08 while SunPower skyrocketed 11.51% to $31 in after-hours trading Monday.
YieldCo gaining popularity in renewable energy sector
YieldCo has become an increasingly popular tool in the renewable energy sector to raise low-cost capital to finance new projects. A YieldCo provides power under long-term contracts, offering stable cash flows that are paid out as dividends to shareholders or reinvested. A YieldCo promises steady, long-term dividends, which makes it seem like a low-risk investment opportunity.
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For a long-time, investors and analysts have been putting pressure on the companies to separately announce YieldCo plans. SunEdison spun off its YieldCo, TerraForm Power, and listed it in 2014. NRG Energy has also bundled up a mix of its conventional power plants, solar and wind farms and spun them off in a new YieldCo called NRG Yield Inc.
YieldCo to help First Solar, SunPower monetize their unsold backlog
In November 2014, First Solar CEO Jim Hughes said that the company was not prepared to pursue a listed YieldCo. However, the company is now it talks to form a joint YieldCo with SunPower. They intend to file for an initial public offering with the Securities and Exchange Commission once the master formation agreement is signed.
Stifel Nicolaus analyst Sven Eenmaa said in a research note that the move will help the companies monetize their existing unsold backlog. It will also provide them an additional avenue for project monetization. Solar industry has seen a number of bankruptcies such as Solyndra in the past few years. But prices have now stabilized as growth in solar panel demand is outpacing the capacity expansion.
Earlier this month, First Solar signed a $848 million deal with Apple to build a solar farm in California.