SunEdison Inc. SUNE recently won a contract for supplying clean energy to the City of Watervliet, NY. Per the 20-year power purchase agreement, the company will sell almost 1 megawatt (MW) DC solar electricity to the city.
SunEdison will install a solar power system of 868 kilowatt DC capacity for this project, expected to be completed this year. The power generated through the solar system will meet more than 83% of the total annual electricity requirements of the city-owned buildings, including City Hall, the fire station and library.
The installed capacity will lower carbon dioxide emission by more than 11 million pounds over the agreement period, which, according to SunEdison, is equivalent to “carbon sequestered by more than 4,000 acres of U.S. forest in a year”.
The facilities will not only provide clean energy but also save about $1 million in tax money over the next two decades.
The demand for cheap and clean energy will increase manifold over the next few years as a result of environmental concerns and depleting natural resources. Being the world’s largest renewable energy developer, SunEdison is well positioned to gain from this.
However, the company’s highly leveraged balance sheet makes us skeptical about financing the project. It incurred a tremendous debt burden because of the string of buyouts, including First Wind and Solar Grid Storage, made over the past one year.
The acquisitions, once believed to be strategic, are now burning a hole in SunEdison’s pocket. The total outstanding debt (including current portion) nearly doubled to $11.7 billion at the end of third-quarter 2015 from $6.3 billion a year ago.
Although SunEdison has taken a series of initiatives, such as lowering its offer price for the Vivint Solar buyout and quitting the development projects in Brazil, to improve the liquidity position, we are yet to see any material impact on the balance sheet.
Moreover, the company recently announced debt restructuring initiatives. However, the strategy is reportedly very complex and expensive. (Read: SunEdison Dives 39% on Complex Debt Restructuring Moves)
Further, though wining a new project is a positive, the deal is too small to have any material impact on the company’s cash flow. Therefore, we would advise investors to stay away from this Zacks Rank #3 (Hold) stock for now.
Meanwhile, investors may consider some better-ranked stocks in the broader technology sector such as Diodes Incorporated DIOD, Integrated Device Technology Inc. IDTI and Mellanox Technologies Ltd. MLNX. All these stocks sport a Zacks Rank #1 (Strong Buy).
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