Last week, Wells Fargo & Company (WFC) announced to finance for the operation of 53.5 megawatt (MW) photovoltaic solar power project of Sun Edison in New Mexico. The project includes five solar power plants, while three plants will be activated in the installation phase.
The remaining two plants are anticipated to be in operation before the end of 2011. For the installation phase, Wells Fargo has already provided more than $200 million.
Wells Fargo’s foray into the renewable energy sector is not new. The company’s Energy Investments group is mainly focused on renewable energy projects – wind and solar. Since 2006, the company has invested about $2.2 billion in renewable energy projects, including funding for 35 wind projects and more than 220 solar projects in 26 states.
Proceeding in the renewable energy industry, Wells Fargo has started providing construction financing for the project in early 2011 and financing these new SunEdison projects is the largest. Upon completion of all five projects, Wells Fargo has agreed to provide permanent equity financing.
The success of SunEdison project augments the growth of solar industry and indicates Wells Fargo’s assurance to renewable energy and sustainability. With the ongoing deal with Wells Fargo, SunEdison plans to generate reasonable solar energy solutions in the industry with its experience and large scale deployments. Such achievement renovates the dynamics of distributed solar generation, produces a significant source of clean energy and generates thousands of jobs across the U.S.
SunEdison is a subsidiary of MEMC Electronic Materials Inc. (WFR) and a leading solar energy provider. MEMC Electronic, on the other hand, is a global leader in the manufacture and sale of wafers and related intermediate products to the semiconductor and solar industries.
Southwestern Public Service Co., a subsidiary of Xcel Energy Inc., purchases electricity from the solar farms to provide support to the utility’s observance with New Mexico's renewable portfolio standard. After all sites come into action, it is expected that the solar farms will produce more than 1.9 million megawatt-hours of electricity over the next 20 years. This will produce enough power for over 8,000 average U.S. homes per year.
In June 2011, Bank of America Corporation (BAC), Prologis and NRG Energy announced an offer to help the largest distributed rooftop solar generation project in the world. The offer includes a provisional assurance with respect to finance from the U.S. Department of Energy's Loan Programs Office. The loan guarantee facilitated debt of $1.4 billion of the total project size of about $2.6 billion, which will be financed completely by the private sector over the next four years.
Through this distributed solar project, more than 10,000 full-year jobs will be generated across 28 states. After completion, these installations are estimated to supply about 733 MW of distributed solar energy, which would provide renewable energy to power roughly 100,000 homes.
In October 2010, Wells Fargo’s closest competitor, JPMorgan Chase & Co. (JPM) also announced that its unit JPMorgan Capital Corporation signed a deal with SunEdison to finance a solar (photovoltaic) energy development project. The amount to be invested by the company was approximately $60 million, which be deployed in major SunEdison markets across the U.S.
We anticipate continued synergies from Wells Fargo’s diversified operations and strong capital position. With cross-selling as its key strength, the company has a diverse geographic and business mix that enables it to sustain consistent earnings growth.
Opportunistic acquisition and the demise of some smaller players helped the company to garner a larger share in the market. Yet top-line headwinds and regulatory issues remain a cause of concern.
Wells Fargo currently retains its Zacks #3 Rank (a short-term Hold rating). Moreover, considering the fundamentals, we maintain our long-term Neutral recommendation on the shares.
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