Does Abengoa Yield signal a new trend in CSP financing?
Abengoa scored big with a US stock market debut that raised more than $721 million. But whether other CSP players could get away with something similar is debatable.
By Jason Deign
The success of Abengoa’s stock market debut last month might be hard for other CSP operators to emulate, according to sources consulted by CSP Today.
Abengoa likely benefited from offering portfolio in which CSP was balanced by other assets, since US developer climb-downs over initial public offering (IPO) plans in 2012 have left American investors wary of backing solar thermal stocks, says to Fatima Toor of Lux Research.
While Abengoa’s subsidiary Abengoa Yield was able to raise USD$720.6 million on Nasdaq last month, BrightSource Energy backed out of a $182.5 million IPO two years ago, citing adverse market conditions.
John Woolard, BrightSource’s president and chief executive, said in a statement at the time: “While we received significant interest from potential investors, the continued market and economic volatility are not optimal conditions for an IPO.”
The reversal dampened enthusiasm for CSP stocks despite Abengoa Yield’s success, says Toor. “I think it’s a one-off,” she believes.
“After BrightSource there’s a lot of negative PR about CSP in general. That’s why we think the level of CSP activity is going to go down. We don’t see a lot of momentum towards CSP within the US.”
UK-headquartered Abengoa Yield, whose shares beat an initial guide price of $25 to $27 and then soared 28% from $29 to $37 in first-day US trading, is what is known as a ‘yield-co’: an investment vehicle that passes on dividends from stable power contract-linked cash flows.
The yield-co formula is becoming a popular way for renewable energy developers to secure financing. Last month the Financial Times cited Vishal Shah, an analyst at Deutsche Bank, as predicting up to half a dozen more yield-cos to list within the next 18 months.
But one of the attractions for investors is that yield-cos are able to ensure growth by continuing to add assets to their portfolios. This could restrict the prospects for companies that have a narrow focus on CSP and a consequently uneven pipeline of projects.
Abengoa Yield has a portfolio that includes four CSP plants as part of a range of energy and electrical transmission assets.
Two of the plants are 280MW facilities in the US: the Solana plant in Arizona, which has a 29-year power-purchase contract, and the Mojave project in California, which has 25 years.
The other two plants are the Solaben 2 and 3 projects in Spain, each with 50MW and a 24-year contract.
Abengoa would not confirm to CSP Today whether the forecast profitability of the Spanish plants was subject to write-downs following the approval of punitive anti-renewables legislation in Spain last month.
In any case, though, the Spanish plants represent only represent around 7% of Abengoa Yield’s portfolio.
Other assets include the 50MW Palmatir wind farm in Uruguay, the Abengoa Cogeneración Tabasco combined heat and power plant in Mexico, and two sets of electric transmission lines each in Peru and Chile.
According to Abengoa Yield’s investor fact sheet, only 7% of the company’s revenue is linked to euro contracts, while the remainder is US-denominated or linked.
At the time of writing, equity analysts including Citigroup and Canaccord Genuity were unable to release analyses of the stock owing to a standard 25-day quiet period enforced by the US Securities and Exchange Commission. This was due to end on July 7.
In the meantime it is difficult to gauge to what extent the CSP assets in the portfolio, and in particular those located in Spain, may have acted as a deterrent or an incentive for the US investment community.
What is clear is that even though US-based CSP accounts for well over half of Abengoa Yield’s asset base, American players such as BrightSource might have to go to market with an even stronger emphasis on solar thermal generation.
Nevertheless, some of the other Spanish industrial concerns, such as Acciona, could conceivably follow Abengoa’s lead and entice US investors with a balanced portfolio of international energy assets. And, indeed, there are signs this may happen.
Last month Acciona sold a one-third stake in Acciona Energia International (AIE), which holds its non-Spanish renewable energy assets, to the private equity firm KKR & Co.
According to Bloomberg: “The two companies will seek to hold an initial public offering through a so-called yield-co for all or part of AIE’s assets.”
It remains to be seen whether this is a smart move or a strategy born of desperation amid the dire market conditions Spanish CSP companies face at home. Despite the potential gains, “IPOs make you vulnerable,” says IHS solar power analyst Josefin Berg.
And for now, US companies are remaining coy about whether they, too, will go down the IPO route. “We don’t have additional details to share,” says a spokesperson at BrightSource.
To respond to this article, please write to the author, Jason Deign.