News & Our Thinking

(St. Louis Post Dispatch)

“It used to be $8 per watt to install solar and now it’s gone down to maybe $2 or $3,” said Ying Ko, a certified financial analyst with Clayton-based Argent Capital Management.”

September 12, 2014  (Jacob Barker)

When Google Inc. signs a check, it tends to turn heads, which explains the buzz this week over the tech giant’s announcement it would finance $145 million of a SunEdison solar project in California.

But the 82-megawatt solar farm project expected to begin operation later this year is one small example of the work that Maryland Heights-based SunEdison has undertaken in recent years.

In just a few years, the former MEMC Electronic Materials has become a global leader in solar energy development. It was building 475 megawatts of solar energy at the end of June, and it says it has some 4.3 gigawatts of new systems planned. Its stock price has more than quintupled from two years ago and risen more than 50 percent since the beginning of 2014.

This year, research firm IHS expects the company to install 950 megawatts of solar modules throughout the globe, the third-most in the world and up from No. 5 in 2013.

Driving the change in the company’s fortunes is a big bet on solar that positioned it to catch the benefits of technological advances and rising demand that have made solar panels competitive with other forms of energy. It still relies on government subsidies such as federal tax credits, but the industry has made a lot of headway in a few short years, and many see big potential long term.

“It used to be $8 per watt to install solar and now it’s gone down to maybe $2 or $3,” said Ying Ko, a certified financial analyst with Clayton-based Argent Capital Management. “In the long run you’re starting to get to the point where you can justify it without even the subsidy. People are looking at this math and thinking, ‘wow, the sky’s the limit.’”

It’s almost a complete turnaround from when the company (then MEMC) lost $1.5 billion during 2011.

Since then, it has shed the MEMC name and separated the semiconductor business, which formerly used most of the silicon wafers it manufactured, into a separate corporation. Though it still controls this business, named SunEdison Semiconductor, the deal allowed parent SunEdison to focus on the solar industry.

It changed its name to SunEdison last year, a solar panel maker it purchased in 2009 for $200 million. At the time, it was touted as one of the largest solar companies in North America.

While SunEdison is still losing money — it lost $41.2 million in the second quarter — the losses are narrowing and investors seem to think the company’s upside is worth the wait.

Of 16 analysts tracked by Bloomberg who follow SunEdison, 14 put buy ratings on the company. Only one recommended a sell.

“A lot of the attention is put on the growth and how much potential they may have,” Argent’s Ko said.

The company holds onto some solar arrays and sells others. Many of its customers buy the power from a SunEdison financed and operated solar array, an arrangement that makes solar power affordable to even more companies and households.

While it was unclear exactly how much solar energy capacity it owned, through the first half of the year SunEdison generated $110 million in solar electricity sales. That was up from $36 million through the first half of 2011.

The company still sells some of the arrays it builds, and the other major recent development was its July initial public offering of a financing vehicle, TerraForm Power. That raised some $500 million and cleared a major hurdle: generating enough cash to finance the demand for solar arrays, Ko said.

Known as a “yieldco,” SunEdison put roughly 800 megawatts of power in Terraform. Those solar arrays sell electricity and pay investors dividends. SunEdison gets some of the revenue to supplement electricity sales from arrays it maintains. But more importantly, it can sell the solar plants it develops to Terraform, freeing up cash so it can start new projects.

“Investors like YieldCos because they offer higher returns than can often be found in today’s low-rate environment, while energy companies are finding them attractive because their structure results in a lower cost of capital that allows them to competitively monetize operating assets, including thermal infrastructure and power generating assets,” Standard & Poor’s said in a research note this week.

As previously reported, the Google will provide SunEdison financing to convert a one-time oil field into a solar power plant located north of Los Angeles. The plant, which will be operational later this year, will sell its power to utility company Southern California Edison.

The big projects and the big financing deals tend to grab the headlines, but there are hundreds of megawatts of new SunEdison projects that don’t make the papers. Smaller arrays financed for customers who lock in a fixed cost for energy is a big part of the company’s strategy.

“The interesting thing with (SunEdison) is the distributive side of the business,” said David Carter, senior portfolio manager at Terril & Co. in Sunset Hills, in a July interview shortly before TerraForm’s IPO. “You’re not having to build a big windfarm. You do a good job with one Walmart warehouse. Guess what? There’s others.”