On Tuesday, First Solar (FSLR) and its partner Sun Energy (SPWR) announced the partners had filed an S-1 registration statement with the Securities and Exchange Commission to own and operate a YieldCo called 8point3 Energy (the company hasn't been assigned a ticker yet). The prospectus is expected to raise at least $50 million. (Read the first part of this series on YieldCos here.)
As expected, the company will launch with 432 megawatts (MW) of solar-power generation. Some of the solar projects are in the late stages of construction, but will be active by the time the prospectus becomes effective. According to the prospectus, there is plenty of room for growth. 8point3 will have the "right of first offer" (ROFO) on as much as 1,311 MW of power. About 10% of those ROFO projects are completed and generating electricity. The rest of them will be operational within the next 18 months.
The U.S Energy Information Agency (EIA) projects electricity generation to increase 34% between 2014 and 2040, requiring an increase in capacity of more than 600 GW of electricity generation through solar projects.
Of the initial 432 MW, 8point3 has lined up several blue-chip customers to buy the electricity. Eighty-seven percent of the projects are "utility scale" and suitable to plug into the electric grid. San Diego Gas & Electric, Pacific Gas & Electric, Southern California Edison and the University of California are among the customers that have signed contracts to buy power from 18 to as long as 28.7 years. Seventy-five of the contracts are for terms of between 20 and 24 years.
The company has diversified, too. Approximately 13% of the power under contract is to 5,900 homeowners who have solar panels on their homes. To qualify for the project, the homeowners need to have a FICO score of 790 or better; after all, the sponsors only want to include homeowners who are likely pay their electric bills.
Because 82% of the solar power is expected to come from California, the company will have a seasonally weak first quarter. During the first quarter, it's winter in California and the sun's angle is not as high in the sky. The change of angle and the sun's diminished intensity cause the solar panels to generate slightly less electricity. The company can offset this effect by building projects in other parts of the country (or world) or further diversify into other areas of renewable energy such as wind. The sponsors have built or supplied solar modules to approximately 39% of the solar capacity in the U.S. and 11% of the capacity in the Organisation for Economic Co-operation and Development (OECD).
According to the prospectus, if the company had been in operation during fiscal 2013, 8point3 would have generated $24.5 million in revenue.
Global energy demand is increasing due to economic development and population growth. Solar power is the world's most abundant form of energy and has been the fastest-growing source of electricity in the past decade. Despite that growth, according to the Renewable Energy Policy Network for the 21st Century (REN21), solar power accounts for just 1% of the electricity generated worldwide.
According to the EIA, the percentage of coal-fired generation in the U.S. decreased to 40% in 2013 from 52% in 2000 and is expected to further decrease to 32% by 2040. Meanwhile, solar accounted for 36% of all new U.S. electricity capacity installed in 2014. The U.S. installed an estimated 6.3 gigawatts (GW) of solar power in 2014, which was comprised of 3.8 GW of utility-scale, 1.3GW of residential and 1.1 GW of commercial and industrial projects.
Taxpayers are eligible for a tax credit equal to the percentage of the eligible solar equipment at the time it is placed in service: 30% for equipment placed into service prior to 2017 and 10% thereafter.
With strong demand for renewable energy in the U.S. and internationally, I suspect Wall Street will continue to crank out YieldCos.
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