SunEdison struggling despite global renewable energy boom

Posted on 24 Feb 2016 by Aiden Burgess, Tim Brown

US-based renewable solar energy company, SunEdison, is allegedly facing bankruptcy and its stock has plummeted, down 72% this year.

Multiple sources including Yahoo Finance and Fortune magazine have reported the company is under pressure financially due to host of compounding issues.

One of the main ramifications and causes of SunEdison’s recent struggles is its loss of a lucrative contract with Hawaiian Electric worth $350m for three large scale solar projects that were earmarked to produce 148 MWh of solar power annually.

Hawaiian Electric recently cancelled the contract and asserted that had concerns about the company’s financial situation and that SunEdison had missed multiple project deadlines.

In its decision to cancel the power purchase agreements (PPA), Hawaiian Electric cited ‘Sun Edison’s apparently precarious financial condition’ as a major factor, and said in the filing documents that the solar projects ‘had been in default under the PPA’s and had not cured important missed milestones’.

Hawaiian Electric spokesman Darren Pai explained the reasoning for the termination of the contracts in a statement, stating that: “SunEdison missed multiple deadlines throughout the process, did not provide adequate assurances that it could secure financing to develop these projects and did not propose viable options to address the significant risks to our customers of not securing lower cost renewable energy.”

SunEdison has argued that the three large scale solar projects had seen delays at several stages of their development, for which both parties should share responsibility.

The delays were related to the sale of the projects to global investment and technology development firm DE Shaw, which were in part contingent on Hawaiian Electric Company forbearing their right to terminate the projects.

SunEdison proposed that Hawaiian Electric give up its termination rights to allow DE Shaw to take over the projects, but the renewable energy giant could not guarantee that DE Shaw would complete the purchase of the projects.

Latin American issues

On top of the Hawaiian Electric deal cancellations, SunEdison also walked away for a deal to buy Latin America power – a company that develops clean energy across South America.

In response, Latin America Power sued SunEdison as it tried to get access to $150m in arbitration as a result of the failed deal, with the lawsuit claiming that the renewable energy giant is “teetering on the edge of bankruptcy.”

This development comes only months after Chile awarded several lucrative energy deals to solar companies, demonstrating a coming of age for solar power in the region as it outbid coal and wind to be the most economically viable energy generation option.

Challenge to Vivint Solar acquisition

With its recent financial struggles and the cancellation of the Hawaiian contracts, it has truly been a fall from grace for SunEdison.

Once the world’s largest renewable energy company, SunEdison is now almost $11.7b in debt.

SunEdison’s precarious financial position has forced the company to shut down a Texas facility and convert another facility in Oregon into a research center.

SunEdison has also been forced to close its silicon wafer factory in Malaysia in a further effort to curtail its recent debt struggles.

Mired in its large debt, the biggest threat to Sun Edison’s liquidity is a legal challenge to its pending $1.9bn acquisition of Vivint Solar.

Billionaire David Tepper is one party opposing the deal. His Appaloosa Management LP company is the third-biggest shareholder in SunEdison’s TerraForm Power Inc. Yieldco unit.

As part of the Vivint Solar deal, TerraForm is to pay $799m for 470Mhw of Vivint’s assets, which Tepper has said has more benefits to SunEdison than TerraForm, with the billionaire filing a lawsuit to block that portion of the transaction.

If the courts agree with Tepper, then SunEdison may be forced to cover that portion of the deal, which will add further financial strain on the company.

Analyst at Credit Suisse Group AG, Patrick Jobin, highlighted why a powerhouse company such as SunEdison had fallen on dire financial times, as he downgraded the company’s shares to the equivalent of hold.

“Put simply, SunEdison has tried to run too quickly – seeking hyper growth at the same time capital markets are challenged – constraining [its] balance sheet,” he said.

Jobin estimates that if the court case involving the acquisition of Vivint Solar doesn’t go its way, that SunEdison’s value could drop to $270m, after starting the year at $1.2bn.

SunEdison anticipates $266m in non-cash impairment charges and $171m in other restructuring charges in its fourth quarter financial report for 2015.

Despite the turmoil SunEdison inks new Californian deal

Despite the issues surrounding the company, SunEdison yesterday (Feb 23, 2016) announced it had signed two 20-year power purchase agreements with utility company Southern California Edison for 2.7 megawatts DC of solar.

Southern California Edison is exploring how clean energy resources like wind and solar could defer or eliminate the need to build a new gas power plant in Orange County. The closure of nearby ocean-cooled power plants, including the San Onofre nuclear power plant, has impacted Southern California’s electricity supply, and the utility is eager to find cost effective, clean energy alternatives to support growing demand.

“We know that air quality is a big concern for residents in the area, but so is getting reliable electricity to a growing, economically important region. SunEdison can help,” said Sam Youneszadeh, SunEdison’s regional general manager of its Western U.S. solar business. “Solar is a great way for utilities to boost grid reliability without emitting greenhouse gases. Solar is cost effective, quick-to-build, and can easily scale. It’s great to see Southern California Edison looking after the people it serves.”

SunEdison intends to build the systems using a combination of parking canopies and rooftop space. Solar parking canopies provide shade for parked cars while generating cost-effective, clean solar energy.

These solar systems further help the utility meet California’s recently passed goal to produce half its electricity from renewables by 2030.

The solar systems are expected to generate enough energy to power 640 California homes per year. The systems should help avoid the emission of more than 50 million pounds of carbon dioxide over 20 years—the equivalent of taking around 5,000 cars off the road.