SunPower and First Solar announce plans for a joint yieldco



A yieldco

A yieldco is an investment vehicle formed to own operating assets that generate predictable cash flows. Just like master limited partnerships (or MLPs) and real estate investment trusts (or REITs), a yieldco need not pay corporate-level taxes. Renewable energy projects face uncertainties while under construction but tend to generate predictable cash flows once they’re operational. As a result, the yieldco structure also helps the parent company separate risky activities from predictable activities while getting a tax benefit as well.

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Deal between SunPower (SPWR) and First Solar (FSLR)

On February 23, 2015, First Solar (FSLR) and SunPower (SPWR) announced plans to set up a joint yieldco. Both companies are expected to contribute a selected operational solar generation project for the formation of the yieldco. Both companies will have an equal share in the yieldco. Upon the execution of the master formation agreement, both companies should launch the yieldco’s initial public offering (or IPO).

The terms of the deal are still being chalked out. Both these companies are part of the Guggenheim Solar ETF (TAN). First Solar has an 8.27% weight in the ETF, while SunPower (SPWR) has a 5.28% weight. This deal is unique, as two companies are coming together to form yieldco in this case.

Benefits from the deal

SunPower (SPWR) and First Solar (FSLR) operate in different segments within the solar industry. SunPower is the leader in rooftop installations of high-efficiency crystalline silicon photovoltaic cells, while First Solar is the leader in thin-film technology and utility-scale projects. So the deal will provide a mix of both end user segments, a potential diversification benefit.

The deal follows the background of a successful floating of the yieldco TerraForm Power (TERP) by SunEdison (SUNE) in 2014.


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