Summary:

TerraForm Power will invest $720 million to take over a diverse portfolio from Canada's energy infrastructure company, AltaGas. The portfolio includes 291 MW of commercial and industrial solar projects, 21 MW residential solar, and 10 MW fuel cells. 

Article:

TerraForm Power announced Monday it will take over ownership of a portfolio consisting of 291 megawatts of commercial and industrial solar projects and 21 megawatts of residential solar.

The portfolio, sold by Canada-based energy infrastructure company AltaGas for $720 million, also includes 10 megawatts of fuel cells.

The yieldco formerly connected to SunEdison, and now managed by Canada’s Brookfield Asset Management, said the purchase would grow its distributed generation portfolio to over 750 megawatts. It adds projects in 20 states and Washington, D.C., on which Terraform expects equity returns of between 9 percent and 11 percent.

Because the projects began service several years ago — their average age is 3.5 years old — those returns are likely realistic, according to Michelle Davis, a senior solar analyst at Wood Mackenzie Power & Renewables. She said the range of the portfolio is also a boon, as TerraForm looks from wind generation to more distributed solar. 

“The makeup of this portfolio is super diverse, so it’s no wonder that TerraForm wanted it. It’s a great addition to an investment portfolio,” said Davis.

“This is starting to change, but of all the ways to invest in solar, [commercial and industrial] is typically viewed as the most risky. Having such diversity to the portfolio across so many...markets is certainly a way for TerraForm to have a good portfolio structure that could yield good returns.” 

Squeezing out additional value

John Stinebaugh, the company’s CEO, said TerraForm sees “commercial and operational upside” from the projects. 

“This demonstrates our strategy of recycling capital from stabilized assets with limited opportunities for further value creation into newly acquired assets that meet our return targets,” Stinebaugh said in a statement on the deal.

The company plans to squeeze additional value from the new assets by offering tack-ons like storage and backup generation to the more than 100 commercial and industrial customers associated with the portfolio. 

Davis said it’s unclear whether that approach will yield success. 

“It’s yet to be seen whether or not that strategy of trying to sell multiple services to the same customers is really a big advantage in the C&I space,” she said.

“There have been other asset owners or developer owners in the past who have tried to do the same type of business strategy, where they sell solar and then they offer other services with the hopes of being able to have customers already at the ready. […] That strategy hasn’t necessarily led to any sort of significantly better success.” 

The new scale of TerraForm’s portfolio, at over 7 gigawatts, should allow it to take advantage of reduced operation and maintenance costs, the company said. 

For AltaGas, the sale is part of a larger effort to shed assets. The company said this agreement brings its total 2019 asset sales to $1.3 billion, as it looks toward an annual target between $1.5 billion and $2 billion.

The deal is expected to close in the third quarter of this year.

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