In a bid to solidify its position in the emerging economies, SunEdison Inc. SUNE has signed an agreement with South African power producer, BioTherm Energy, to buy a 60% stake in the latter’s 48.5 megawatt (MW) clean-energy capacity in South Africa, according to Bloomberg. Reportedly, the deal will be completed after it is reviewed by the country’s energy department.
Per the agreement, the solar technology company will acquire interests in BioTherm’s operating solar and wind power plants in South Africa under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) round one portfolio.
Under this portfolio, BioTherm operates a 27 MW Dassiesklip wind farm and two solar plants — Konkoonsies and Aries — each with 10.8 MW capacity. The company has been selling the power generated from these plants to state-owned Eskom Holdings SOC Ltd. under a 20-year fixed-price power purchase agreement (PPA) since 2014.
Furthermore, the agreement states that, after one year from the transaction closing date, SunEdison may assume management responsibilities of the acquired assets.
The recent agreement is one of several that SunEdison has entered into to expand its presence internationally. Earlier, the company formed strategic alliances in Brazil and India.
Moreover, we believe that the recent investment in the South African renewable energy market syncs well with SunEdison’s long-term strategy of capitalizing on the growing opportunities across the emerging markets. In early May 2015, the company disclosed that it has acquired seven renewable assets in the emerging markets of Brazil, China, India, Peru, Chile, South Africa and Uruguay for a total of $537 million.
Additionally, the company is going to form a second publicly traded “YieldCo” company — TerraForm Global Inc. — for which it has already filed a registration statement with the Securities and Exchange Commission (SEC) for an IPO. By publicly listing this YieldCo, the company intends to get easy and low cost financing to make investments mainly in emerging markets. SunEdison formed its first publicly traded YieldCo — TerraForm Power Inc. TERP — in June last year.
The rising global demand for cheap and clean energy due to environmental concerns and depleting natural resources is benefiting SunEdison. According to Bloomberg, global solar and wind energy project installations in 2015 are likely to increase to 52,000 MW and 60,000 MW, respectively. Of this, a significant portion is expected to be in emerging countries, like India, Brazil and South Africa. SunEdison is well positioned to capitalize on this opportunity.
Despite the positives, we recognize that solar projects require considerable time and investment and any delay or inability in selling these projects at desired prices could affect the company’s liquidity.
The pricing environment and a highly leveraged balance sheet are the other concerns plaguing SunEdison. Apart from this, the company faces competition from the likes of SunPower Corp. SPWR and First Solar Inc. FSLR.
Currently, SunEdison has a Zacks Rank #3 (Hold).
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