SunEdison on march in fragmented market


July 10, 2015

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One of wind’s biggest stories of 2015 is the acquisitive march of US solar giant SunEdison.

Barely a month goes by without SunEdison or its yieldco TerraForm completing a big deal and July has been no exception. This week it announced a $2bn acquisition of seven wind farms totalling 930MWin North America from US developer Invenergy. SunEdison and TerraForm have bought wind capacity of 2.1GW so far in 2015.

Since January, the companies have announced eight deals spanning nine countries. It has bought US developer First Wind for $2.4bn; Indian developer Continuum Wind for $650m; a 521MW portfolio of five wind farms from Atlantic Power for $350m; two businesses in South America; and a battery storage company. We expect more in the next six months.

Now, we do not want to dwell much on the strategy of SunEdison or TerraForm, both of which will stay acquisitive. We want to focus on
what this strategy tells us about the future direction of the global wind industry; and what this means for North American developers.

The most interesting aspect here is from Carlos Domenech, chief executive at TerraForm, who said this deal would “unlock significant value as we aggregate in a highly fragmented industry”. Clearly, he sees wind as a sector that is ripe for portfolio consolidation.

US wind developers are already aware that there are wind-focused yieldcos that want to buy portfolios of operational projects, so they can generate strong returns for shareholders. TerraForm has said it would continue to focus on opportunities in North America.

But the addition of yieldcos like TerraForm that traditionally focus on other sectors will only increase this competition. This should give wind developers more confidence that they will be able to sell their completed schemes. It also means these developers can recycle their capital into new schemes, either in North America or overseas.

The fact there is more competition for completed wind farms will increase the risk that these yieldcos will overpay for assets — not that this is a worry for the vendors.

Furthermore, the deal between SunEdison, TerraForm and Invenergy is interesting as it is not a one-off transaction. Invenergy is set to retain a 9.9% interest in the acquired projects, and it will continue to provide operations and maintenance support for them.

We expect tie-ups like this between major wind and solar firms to become more common. Companies in both sectors are looking at how they can grow in new markets, and teaming up to offer a wider range of renewable energy expertise is one way that to do so.

The partnership between SunEdison and Gamesa revealed last week is another example.

And with every deal, SunEdison is increasing its understanding of the wind sector, which is also de-risking itself from any issue thrown up by the idea that it doesn’t understand wind.

We expect other major investors to enter the consolidation game. But we doubt whether they will do so at the scale or pace that SunEdison has managed thus far.

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