Scalper1 News
Renewable energy YieldCos continue to feel the pain. This investment vehicle was once conceptualized and launched for the sake of helping energy companies raise cheaper project financing while benefiting investors through higher distributions and yield. But now they continue to bear the brunt due to several reasons. First, the recent crash in crude oil prices to the $40 level is taking its toll on YieldCo stocks. Low oil prices reduce the demand for renewable energy and therefore YieldCos. Second, the slowdown in China, the world’s biggest producer of solar panels, doesn’t bode well for them. China is projected to grow by 6.8% in 2015, which would be the lowest in 25 years. Third, the brightened prospect of an interest rate hike by the Fed in December makes the high-yielding YieldCo stocks less appealing to investors. Further, a rising interest rate scenario is never desirable for them, as it raises their cost of project financing on which they are highly dependent. Finally, YieldCos need to issue shares (generally at higher prices than their IPOs) from time to time to raise capital for new investments as most of their cash flow gets wiped out by paying dividends. However, they are facing difficulties on this front due to depressed renewable energy stocks and an oversupply of YieldCos in the market, making investors reluctant to pay higher prices. Let us consider the performance of three new YieldCos, TerraForm Power, Inc. (NASDAQ: TERP ), TerraForm Global, Inc. (NASDAQ: GLBL ) and 8point3 Energy Partners LP (NASDAQ: CAFD ). Shares of TerraForm Power lost a significant 73.8% since its IPO was launched by SunEdison, Inc. (NYSE: SUNE ) last year. On the other hand, shares of TerraForm Global, also launched by SunEdison, cooled off 59.3% since its IPO this August. Meanwhile, shares of 8point3 Energy Partners shed 42.1% since its IPO launched by FirstSolar Inc. (NASDAQ: FSLR ) and SunPower Corp. (NASDAQ: SPWR ) in June this year. Notably, SunEdison YieldCos – TerraForm Power and TerraForm Global – posted dismal quarterly results at the beginning of this month. TerraForm Power reported a loss of 3 cents per share for the 2015 third quarter in sharp contrast to the Zacks Consensus Estimate of earnings of 28 cents. On the other hand, TerraForm Global reported a considerably wider-than-expected loss of 33 cents per share for the quarter compared with the Zacks Consensus Estimate of a loss of 14 cents. The oldest surviving YieldCo, Brookfield Renewable Energy Partners LP (NYSE: BEP ), formed by Brookfield Asset Management (NYSE: BAM ), also posted a wider-than-expected loss of 7 cents per share compared with the Zacks Consensus Estimate of a loss of 5 cents at the beginning of this month. The YieldCo had generated earnings in the three preceding quarters. These adverse developments have led Global X YieldCo ETF (NASDAQ: YLCO ) to tumble 32.2% since its launch in May this year by Global X (as of November 23, 2015). YLCO intends to diversify the risk of owning YieldCo stocks by tracking the Indxx Global YieldCo index. The ETF holds 20 securities with Brookfield Renewable Energy Partners, NextEra Energy Partners, LP (NYSE: NEP ) – a NextEra Energy, Inc. (NYSE: NEE ) YieldCo – and NRG Yield, Inc. (NYSE: NYLD ) – a NRG Energy, Inc. (NYSE: NRG ) YieldCo – taking up the first, second and third spots with 12.13%, 9.02% and 8.36% shares, respectively. The fund is highly concentrated in its top 10 holdings, which account for 68.74% of total assets. It has a global footprint with the U.S. occupying the top spot at 37%, followed by Canada (31%), U.K. (20%) and Spain (12%). YLCO has gathered a meager $3.5 million in assets and trades in a paltry volume of 4,000 shares. It charges 65 bps in annual fees from investors and has a dividend yield of 2.8% (as of November 23, 2015). Original Post Scalper1 News
Scalper1 News