SunEdison Inc., the world’s largest renewable energy developer, plans to cut 15 percent of its personnel after a yearlong spending spree and a precipitous drop in its stock price.
The cuts among the company’s 7,300 staff are even deeper than what was originally reported yesterday by Greentech Media. The board of the company decided a week ago to carry out the layoffs in the face of a slowing market and to eliminate redundancies among its many new arms, according to a document filed yesterday with the Securities and Exchange Commission.
SunEdison plans a phone call with investors tomorrow to provide more details.
In the past month, nervous investors have pushed two of the most ambitious and acquisitive clean-energy companies — SunEdison and NRG Energy Inc. — to trim their plans. Both companies have plowed their moneymaking assets into yieldcos, a new investment vehicle that Wall Street loved a few months ago but has now soured on.
The core business of U.S.-based SunEdison is putting together large, complex solar- and wind-energy projects around the world, with operations as far-flung as India, Brazil, England and Massachusetts. In the past year, those operations became more complicated as the company entered new markets and bought up competitors around the globe.
Last November, the company expanded from solar into wind energy with a $2.4 billion purchase of First Wind. In June it bought Continuum Wind Energy, a wind developer in India, for about $620 million, according to Livemint. That same month, SunEdison snapped up a leading wind and solar developer in Central America. In July, it acquired Vivint Solar, a major U.S rooftop solar developer, for $2.2 billion.
Also this year, SunEdison created two yieldcos, which are essentially holding companies for the company’s completed projects. Since those projects are contracted to last decades, yieldcos were meant to provide investors with a long-term, dependable payback in the unpredictable renewable energy business, while giving their parent companies a cheap supply of capital.
Since 2013, at least 10 yieldcos have been created in the renewable energy sphere and received enthusiastic investment until midsummer, when confidence ebbed.
"The business model for many yieldcos is to issue equity, acquire projects and pay out cash flow. When the equity prices go down, that raises their finance cost, which jeopardizes the business model," said Travis Miller, director of utilities equity research at Morningstar, a research firm.
This week’s news echoes that of NRG Energy, a company with a portfolio that is both different from and similar to SunEdison’s.
NRG’s principal business is operating one of the country’s largest fleets of traditional power plants running on coal and natural gas. In the past several years, the firm has bought its way into a diverse portfolio of clean energy projects, including large wind and solar farms, a rooftop solar installation business and a network of electric vehicle chargers (EnergyWire, Sept. 9, 2014).
NRG has seen its stock drop from a 52-week high of $32 to $18 per share a few weeks ago and a corresponding slide in its yieldco, called NRG Yield.
Three weeks ago, CEO David Crane announced that the company’s clean energy holdings would be reshuffled into a "GreenCo" that stands apart from the company’s traditional businesses (EnergyWire, Sept. 21). NRG hoped its intentions would increase confidence, but the stock has dropped further, to $14.
At the time of the Vivint acquisition, SunEdison’s CEO, Ahmad Chatila, told Bloomberg that adding a major rooftop solar installer to the portfolio would give the company "unabated growth for 20 years."
The firm continued to express confidence in its strategy, even as it took on heavy debt from its new purchases and its stock prices sank. SunEdison stock plunged from a high of $31 in mid-July to $9 at market close yesterday. Its two yieldcos, TerraForm Power and TerraForm Global, have experienced similar declines.
One analyst suggested the company’s bold, deal-making approach to energy projects may have not prepared it for the level of financial restraint it needed when participating in financial markets with its yieldcos.
John Hempton of Bronte Capital wrote in a blog post last week that Chatila ought to step down in favor of "someone whose job it is to ensure — and be seen to ensure — that bad projects are not funded."
"Mr Chatila has built an institution for which he is profoundly unsuitable to run," Hempton wrote.
Also yesterday, the man at SunEdison who will presumably carry out the layoffs — head of human resources Stephen Cerrone — acquired stock options worth $360,000, according to an SEC document.