Solar Stocks Soar Higher on Emerging Yieldco Strategy

A new way to invest in solar has Wall Street excited today.

May 29, 2014 at 3:30PM

The stock market largely brushed off a reported 1% decline in GDP during the first quarter, and near the end of trading the Dow Jones Industrial Average (DJINDICES:^DJI) was up 0.43%. As fellow Fool Alex Planes pointed out, the contraction was driven by a decline in private investment, namely homebuilding and capital equipment.

Investment can swing quarter to quarter, and it's likely that we'll see a swing the other way when the second quarter's numbers are released, so Wall Street isn't reacting negatively to what seems like a bad headline.

We're seeing big gains today in the solar industry, which is once again revolutionizing how we invest in energy.

Sune Air Force Project Image

Wall Street loves the yieldco
SunEdison (NYSE:SUNE) said today that its yieldco subsidiary, TerraForm Power, had filed an S-1 for its planned IPO. The entity will own and operate solar energy generating assets built by SunEdison and other project builders.

This isn't a new concept, NRG Energy launched NRG Yield (NYSE:NYLD) last year, and companies such as SunPower (NASDAQ:SPWR) also see yieldcos as a potential option in the future. Why does the market love this move so much?

Spwr Residential Close Up

Residential solar installations like this one could someday be owned by a yieldco. Image courtesy of SunPower.

Yieldcos give investors the ability to invest in solar projects without taking the risk of owning a panel manufacturer or installer like SolarCity (NASDAQ:SCTY). From the company side, the more yieldcos on the market, the more buyers there are for their solar assets.

SunPower says it will determine the fate of projects like the 100-megawatt Henrietta and the 135 MW Quinto power plants in California once the projects are built. In other words, they may be sold to yieldcos like NRG Yield or TerraForm Power if the price is right.

We may also see some of SolarCity's assets eventually end up in a yieldco to get exposure to the residential market. This would be one way for SolarCity to monetize assets, something it will need to do to keep up its torrid growth pace.

The big picture
One of the challenges the solar industry has faced in the last decade is finding financing for projects. Solar was viewed as high risk and investors commanded high returns just to buy a project.

But that risk profile has improved, and as new financing options such as equity financing, securitization, and yieldcos grow, the industry will grow along with them That's why a seemingly small announcement like a yieldco from SunEdison can cause companies like SunPower to SolarCity, which seemingly have little to do with SunEdison, to pop. More financing is good for solar and it's good for everyone.

American energy is booming
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Travis Hoium manages an account that owns shares of NRG YIELD INC and SunPower and is personally long shares and options of SunPower. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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