Canadian Solar to use Recurrent Energy PV projects for global yield co dropdown

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Major PV energy provider (PVEP) Canadian Solar has finally announced plans to initiate its first global yield co financial structure, which could be floated on a US stock exchange as early as the fourth quarter of 2015. 

Until now, Canadian Solar has primarily followed a simple build and sell business model for its rapidly expanding PV project development business but the planned acquisition from Sharp Corporation of its project developer arm, Recurrent Energy, provides the company with a potentially large pipeline of quality assets to dropdown into the yield co, while retaining liquidity with the current build and sell model. 

“We have been reviewing various options to structure and potentially list our downstream business, and we are now planning to form a yield co vehicle, in order to maximize value creation for our shareholders over the long-term,” said Dr. Shawn Qu, chairman and CEO of Canadian Solar. “We expect that a yield co vehicle and its subsequent listing would enable us to capture the value inherent in our large pipeline of long-term contracted assets and to recycle capital. We are engaged in the process of analyzing the optimal structure for a yield co, including the optimal asset profile. We expect to complete the sale of those Canadian projects for which we have an identified end-buyer. We may, however retain other projects that we have developed for eventual inclusion in the asset base of a yield co structure or add additional assets from third parties. We plan to update the market as the process evolves.” 

Management noted in an earnings call that the global yield co structure would incorporate PV projects from highly developed OECD countries that have stable markets such as North America, Japan and Europe. 

However, management noted that its projects in China, as well as projects planned in the country in 2015 would be carried on the balance sheet, such assets may not be dropped down to the planned yield co. 

The company noted that it would be evaluating the best options for its China projects. 

Canadian Solar also highlighted that many of the Recurrent Energy projects expected to be completed this year already had signed module supply contracts and that Canadian Solar’s module shipment guidance excluded any possible supply requirements Recurrent Energy may have. 

Once the acquisition of Recurrent Energy is completed, Canadian Solar's total solar project pipeline was said to increase by approximately 4.0GW to 8.5GW. 

Importantly, its late-stage, utility-scale solar project pipeline would increase by approximately 1.0GW to 2.4GW, with around 1.0GW of late-stage, utility-scale projects expected to be built prior to the expiration of the US ITC in 2016.

Canadian Solar reiterated that this late-stage pipeline represented an estimated revenue opportunity of at least US$2.3 billion in revenue under a build and sell business model.

The yield co IPO could be actioned in the fourth quarter quarter of 2015 or early 2016, according to managemnt.

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