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Stranded Assets: The $26 Billion Hole That Has Green Power Scrambling for Cover

Mark Chediak and Chris Martin , Bloomberg

For investors in yieldco stocks, it’s been a quick and wild ride. Two years ago, yield companies like TerraForm Power Inc. and NRG Yield Inc. were the newest, hottest thing for energy investors — a way to make steady returns off the booming clean energy sector. Share values soared after they were spun off by parent companies eager to cash in. Today, those same parent entities have put as much as $26 billion worth of sales to their affiliates on hold after the market value cratered.

“Yieldcos are stranded right now,” said Ben Kallo, an analyst with Robert W. Baird & Co. in San Francisco. Given the drop in their values, yieldcos effectively have lost their sense of purpose, which was to use their shares to buy new plants. “The best course of action is to wait it out,” he said.

Yieldcos have lost about 40 percent of their value since June.
Yieldcos have lost about 40 percent of their value since June.

The swift change in fortunes came as the Federal Reserve prepares to raise interest rates, reducing the attractiveness of yieldco returns, and amid a broader selloff in commodities this year. For SunEdison Inc. and NRG Energy Inc., the drop in yieldco values has meant the removal of a willing — and related — buyer for power projects, sales that would fund future growth for the parent company.

SunEdison offers up a cautionary tale for investors. The world’s biggest renewable energy developer said last month it doesn’t expect to sell any projects to its two yieldco units through 2016 after they slumped in value.

The first, TerraForm Power, has plunged 55 percent from its $42.15 April peak and closed Monday at $18.78. That’s down from $25 at the time of its initial public offering in July 2014. The second, TerraForm Global Inc., has lost 47 percent since its trading debut in July. Given the losses, Chief Executive Officer Ahmad Chatila has said SunEdison will look to unload assets to third-party buyers or hold them.

Yieldcos Stranded

At least 12,873 megawatts of projects by developers in North America such as NRG Energy Inc. and SunEdison were targeted by the companies’ yieldcos, according to data compiled by Bloomberg. Utility-scale assets had an average acquisition price of about $2.8 million a megawatt for solar and $2 million for wind at the end of 2014, according to BNEF. Using that estimate, the facilities that were targeted for sale to yieldcos are worth at least $26 billion.

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