Investors count SunEdison cost as countries focus on climate change
SunEdison, the world’s largest renewable energy developer, filed for bankruptcy last week after its $3.1bn buying binge soured. The Missouri–based company pursued an aggressive debt-fuelled acquisition strategy between 2014 and 2015, which saw it scooping up a large portfolio of solar and wind projects across the globe. SunEdison racked up significant debt and a turning point came when it announced plans to buy Vivint Solar last year at a 52% premium, leading investors to question its business model.
According to Bloomberg News reports, the bankruptcy will hurt a series of hedge funds that had fuelled SunEdison’s buying spree with cheap capital. Altai Capital Management, AQR Capital Management, Greenlight Capital and Omega Advisors are among companies that could see significant losses. Data compiled by Bloomberg show that hedge funds owned more than half of SunEdison’s shares in 2015 and, as a result, they will probably list SunEdison among their largest failures of the past year.
Despite the filing, SunEdison vowed to press ahead with its plans to build solar projects in India and it is tapping equity firms this time. The company has 550MW of projects under construction in India as part of a 1.7GW pipeline that it plans to develop and build in the next two years, according to SunEdison’s Asia-Pacific president, Pashupathy Gopalan.
Elsewhere in the US, more than 150 nations gathered last week at the United Nations headquarters in New York to sign the historic Paris climate accord. The event reflected the pledges made at COP21 in December last year, for countries voluntarily to reduce fossil-fuel emissions to try to limit global warming to two degrees Celsius (3.6 degrees Fahrenheit) above temperatures at the start of the industrial revolution. The commitments will require huge shifts in the ways societies generate energy, fuel vehicles and run factories. It goes further than any previous climate agreement, applying to developed and developing nations alike. The deal is estimated to cost some $12.1 trillion over the next 25 years for the 195 countries that have said they will sign the agreement, according to Bloomberg New Energy Finance.
Scientists say however, even if all 195 nations meet their individual targets, temperatures will continue to rise over the next several decades before the momentum of global warming tapers off. So, in a bid for nations to do more, UN secretary-general Ban Ki-moon has challenged leaders to go beyond the agreements brokered in Paris, which he believes should be seen as a starting point to fighting global warming.
Meanwhile, Australia may well pledge stronger emissions reduction commitments in 2030 as it takes advantage of the improving economics of clean energy according to research by Bloomberg New Energy Finance. The nation has set a target to reduce emissions by 26-28% below 2005 levels by 2030. Instead, analysts anticipate that the nation could target reductions of up to 63%.
Over in Europe, pension funds, a key emerging investor class in renewable energy projects, are likely to lose interest in new deals in the UK if voters opt to leave the EU according to Torben Moeger Pedersen, head of PensionDanmark A/S. The uncertainty that would be caused by a British exit, dubbed ‘Brexit’, following the June referendum would increase the risk profile of British investments, he said. The remark comes on top of other warnings about the consequences of the UK exiting the EU. Bank of England governor Mark Carney described an exit vote as “the biggest domestic risk to financial stability”. However, research by Bloomberg New Energy Finance suggests that Britain’s exit could make less of an impact on onshore wind and solar investment than the government’s recent policy changes, such the cut in subsidies for solar panels that it announced in December last year.
In emerging market news, Nigeria may soon welcome its first grid-connected solar plant, as Access Energy Group announced plans to develop a 100MW project in Northern Nigeria. The Dubai-based renewable energy company expects this to cost $200m and to be built in two phases of 50MW. Access plans to sign a power purchase agreement soon and begin constructing the project six months later. Sub-Saharan Africa’s clean energy market appears to be increasingly attractive to investors. Recent forecasts by Bloomberg New Energy Finance indicate that the region could see $6.8bn of clean energy investment inflows this year.