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Reborn Brainchild of Fallen Canadian Renewable-Energy Giant Starts Slow


January 16, 2018 by Brian Eckhouse

(Bloomberg) 

The name on the door is still TerraForm Power Inc. Its shares are still traded and the company still owns an extensive portfolio of wind and solar farms. But look inside, and it’s clear plenty of things have changed.

Since Brookfield Asset Management Inc. acquired a controlling stake in October, TerraForm is less reliant on acquisitions to achieve growth. That was the way of previous owner SunEdison Inc., the clean-energy giant that flamed out in the biggest bankruptcy of 2016 after a multicontinent buying binge.

Brookfield, Canada’s largest alternative asset manager, is taking a more conservative approach, one that’s more in line with its own strategy of predictable and steady growth. That includes setting a lower but realistic dividend target, using employees instead of contractors, moving the headquarters to New York and finding ways to boost the output — and value — of operating power plants.

“We want to imbue it with the culture of Brookfield,”  John Stinebaugh, TerraForm’s chief executive officer, said in an interview Friday.

A key shift is the dividend. Toronto-based Brookfield expects to deliver dividend growth of 5 percent to 8 percent a year for TerraForm shareholders. That’s lower than company’s 15 percent to 18 percent target when it operated under SunEdison, a figure that Stinebaugh called “not sustainable.”

Brookfield agreed in March 2017 to take a 51 percent stake in TerraForm Power and all of sister company TerraForm Global Inc. The latter portion of the transaction closed in December. The two deals valued their combined equity at $2.49 billion, and added almost 4 gigawatts of solar and wind farms to Brookfield’s portfolio of power plants.

SunEdison created the two TerraForms as publicly traded holding companies, a model known as yieldcos. They acquired operating power plants, using the revenue from electricity sales to fund dividends and turning to public markets for capital to drive more acquisitions.

Under Brookfield, TerraForm Power won’t need to rely on acquisitions for growth, said Sachin Shah, CEO of the Canadian company’s Brookfield Renewable Partners unit. He sees growth in assets that TerraForm already owns. TerraForm may repower more than 400 megawatts of wind farms in New York and Hawaii — replacing aging turbines with more efficient models — and may expand existing solar arrays and add batteries.

‘An Upstart’

Brookfield has a reputation for thinking long-term, investing in real estate, power and infrastructure projects around the world.

“SunEdison was a large developer with a growing portfolio of renewable-energy assets. It was learning how to manage that portfolio as it grew,” said Nathan Serota, a New York-based analyst at Bloomberg New Energy Finance. “Brookfield is a more experienced asset manager. SunEdison was an upstart.”

Then there are the efficiencies that Brookfield offers. TerraForm previously used outside contractors for many of its operations, and now will lean on its parent for operations and maintenance, Stinebaugh said. The headquarters will relocate to New York this year from Bethesda, Maryland, to better integrate into its new parent’s existing operations.

Brookfield considered taking TerraForm Power private, just as it did with TerraForm Global. While Wall Street has soured on yieldcos, there’s a growing pool of institutional investors keen for what they own: operating wind and solar farms with long-term contracts to sell power.

“In the current market, publicly traded yieldcos are the exception not the rule,” Serota said. “The way forward for most is in the private markets.”

Investors are still keen for listed yield-oriented companies, Shah said. That includes SunEdison’s creditors that still own TerraForm Power shares.

“Let’s just stopping calling them yieldcos,” Shah said. “We’re trying to create a wind and solar powerhouse.”



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