SunEdison Inc (NASDAQOTH:SUNEQ) still bills itself as the largest renewable energy developer in the world -- just look at its home page. But it appears it can't even get renewable energy development right, much less its own finances.
Hawaiian Electric Industries (NYSE:HE) announced recently it has canceled power purchase agreements (PPA) for 148 MW of solar plants the company was supposed to build. SunEdison missed multiple contracted deadlines and couldn't arrange financing after agreeing to sell the projects to D.E. Shaw in late December. Now, SunEdison is sitting on a partially developed solar project without a PPA and a buyer that won't likely close on the transaction. Could this get any worse?
Hawaii becomes a headache for SunEdison
After months of missed financial and progress milestones, Hawaiian Electric had finally had enough of dealing with SunEdison. The PPA that was supposed to support the 148 MW in projects was canceled, and that now calls into question SunEdison's losses on the money that's already been spent on the projects as well as what role D.E. Shaw will play in the process.
On December 30, SunEdison announced it had agreed to exchange "certain under development renewable energy assets" and TerraForm Power shares for the extinguishment of $336 million in Exchangeable Notes. According to the release, $121 million was extinguished shortly after the agreement was signed, and the remaining $215 million would be extinguished when assets were transferred. Documents filed with the Hawaii PUC indicate the transfer still hasn't taken place.
Based on the correspondence provided in the PUC filing (seen here), it seems like SunEdison and D.E. Shaw were trying to negotiate who would make certain progress payments and line up project financing, which kept delaying the projects. At the end of the day, Hawaiian Electric just wanted to wash its hands of the process.
This was a pre-emptive move by Hawaiian Electric
Don't think canceling these PPAs wasn't well thought-out. Hawaiian Electric wanted to reduce the risk in its own portfolio by ridding itself of SunEdison before it was too late. If the PPAs were still outstanding and SunEdison went into bankruptcy, it could have frozen resources and space on the grid. Here is the direct quote from the utility's filing with regulators:
Hawaiian Electric must carefully evaluate each Project to ensure its success and that such Project will not languish due to incompletion or being subject to bankruptcy laws and rules. In such instance, Hawaiian Electric would have to continue to include such resources in its planning efforts until they were terminated or removed from bankruptcy court supervision and could begin work again, taking up valuable limited space on the grid in the meantime and delaying the procurement and installation of projects that would be able to be completed and provide significant benefits to Hawaiian Electric's customers and the State's Renewable Portfolio Standards goals.
That's a scathing statement showing how little confidence Hawaiian Electric has that SunEdison won't end up in bankruptcy. In fact, it's basically betting SunEdison will go bankrupt and is saying it doesn't want any part of that process.
This doesn't end well
Just a few days ago, I wrote that SunEdison is running out of survival options, and creditors are starting to stake claim over the scraps that may be left if the company becomes insolvent. Hawaiian Electric took the path of not having anything to do with SunEdison's deteriorating balance sheet.
This is just the latest black eye for SunEdison, and I don't see how it ends well for the company. If simple renewable energy projects can't be completed on time, what can we really expect from SunEdison going forward?