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When First Solar (FSLR 3.42%) and SunPower (SPWR +0.00%) launched yieldco 8point3 Energy Partners (CAFD +0.00%) last year, their goal was to create a big buyer for the solar projects they planned to build. To fund such acquisitions, yieldcos ideally like to sell a combination of new equity and debt, if those assets can be sold at a price that would add to the dividend over the long term.
The problem most yieldcos have faced in the past year is that their stock prices dropped and their dividend yields rose to a level that made it impossible for them to buy projects that would be accretive to the dividend. So, they couldn't raise new funds and bought fewer projects as a result. No one knew who would buy projects in the future, adding to uncertainty for developers. But that might be changing.
How 8point3 Energy Partners might grow in 2016
Over the past few months, though, 8point3 Energy Partners shares rose to the point that its dividend yield is at a reasonable 5.9%. That's low enough that the company can offer new shares and debt to buy projects, and have them be accretive to the business and the dividend.
On top of that, the company has now been public for over a year, so it has filed an S-3 filing with the SEC for a shelf registration to sell shares in the open market. If management so chooses, it could begin selling shares to fund the acquisition of solar projects from First Solar and SunPower before the year is out.
How this could help First Solar and SunPower
The rise in 8point3 Energy's shares and the S-3 filing could lead to a windfall for First Solar and SunPower. If they can sell the projects they're completing this year to the yieldco for a high margin, as they have done with their projects since the yielco was launched, they could pocket hundreds of millions, or even billions, in revenue in the second half and post another profitable year.
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Another side benefit is that First Solar and SunPower can expect $21.3 million and $27.8 million in annual dividends respectively from 8point3, based on last quarter's dividend, after the forbearance period ended.
For SunPower, there's also the potential to push up non-GAAP earnings and EBITDA recognized from asset sales that have already taken place. Based on the company's accounting rules, SunPower only recognizes 59.3% of the earnings immediately from a project sale to the yieldco, based on its ownership percentage; the rest is recognized over the life of the project. If the ownership percentage of 8point3 Energy partners declines because of dilution, it could push earnings higher. This wouldn't be a cash benefit, because the sales have already occurred, but it would be a benefit to the bottom line, which investors watch closely.
The big news
The biggest impact 8point3 Energy Partners could have on First Solar and SunPower in 2016 would come if it uses the proceeds from newly issued equity to buy up projects from the developers. Both companies are flush with projects because of deals signed in anticipation of the solar investment tax credit expiring at the end of 2016, though it was later extended.
Next quarter, watch for both an increase in 8point3 Energy Partners shares outstanding and new agreements to buy projects from its sponsors. Those events could be good news for all three companies, but especially good for First Solar and SunPower, which would love to have 8point3 Energy Partners be the biggest buyer of their projects going forward.
