Terraform Power: At the Vanguard of the Energy Revolution
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Terraform Power: At the Vanguard of the Energy Revolution

Technology has always had the goal of making life easier and utilizing the resources around us more effectively. These resources have been strained due to numerous factors. The growth in population has led to an increased usage of energy, contributing to higher industrial pollution, among other issues. Thanks to innovation and evolution, there are now more sources of energy which are both affordable and eco-friendly. Companies, institutions and even individuals are gaining their sense of responsibility in conserving the ecosystem with simple steps like using natural energy sources to run day-to-day business activities. In every region of the world, renewable power has increasingly become a major growth story. About $1.5 trillion has been invested in renewables over the past five years, adding over 1 million megawatts of new capacity. Yet we are still in the early stages of a decades-long transition from fossil fuels to renewable sources. Companies such as TerraForm Power have been creating a revolution in the energy sector by empowering businesses to utilize renewable energy. TerraForm Power—an integrated renewable power company—is clearly focused on providing an attractive and sustainable total return to the investors by effectively utilizing renewable energy sources.

"TerraForm Power is expected to own one of the largest portfolios of distributed generation in the United States. The acquisition will increase TerraForm Power’s average contract duration to 14 years and enhance its resource diversity"

Drawing on the 20 years of infrastructure and power expertise of its CEO, John Stinebaugh, TerraForm Power is ready to create a greener tomorrow. Besides being a Managing Partner with Brookfield, Stinebaugh has held a number of senior roles, responsible for sourcing investment opportunities and overseeing operations including oversight of Brookfield’s infrastructure debt business. His experience in the mergers and acquisitions and leveraged financings are also added advantages for the growth of TerraForm Power.

The Eco-Friendly Revolution

Founded by Sun Edison, TerraForm Power was started as a holding company for wind and solar farms. It was a pivotal moment in the company’s history when Brookfield Asset Management stepped in, to buy a majority stake. The partnership with Brookfield created a turnaround plan for TerraForm Power in a difficult time, which is eventually paying off. Despite TerraForm Power’s rocky start, it’s one of the strongest companies in this realm. Around early 2018, the company also acquired the Spanish renewable energy company Saeta and added over 1,000 megawatts to its capacity.

Another critical distinction is TerraForm Power’s management is committed to an annual dividend increase of 5-8 percent through 2022. TerraForm Power isn’t as exposed to the Chinese market and has adopted a strategy of focusing on fragmented energy markets. TerraForm Power strengthens a wide array of companies in renewable power, adding a 3,600-megawatt portfolio of operating wind and solar assets while supporting in expanding renewables footprint. The company today owns and operates over 3,700 MW diversified portfolio of high-quality wind and solar assets that are underpinned by long-term contracts.

TerraForm Power strengthens a wide array of companies in renewable power, adding a 3,600-megawatt portfolio of operating wind and solar assets, while supporting in expanding renewables footprint

Being an owner and operator of best-in-class 3,700+ MW renewable power portfolios including solar and wind assets in North America and Western Europe, the company’s premier assets are underpinned by long-term contracts that produce stable cash flow. Therefore, TerraForm Power is ideally positioned to capitalize on the growth of renewable power generation. The company also has a remarkable potential to grow both organically and through the acquisition of new facilities, including through its sponsor and majority shareholder Brookfield Asset Management.

Evolution with Partnership

In association with Brookfield, TerraForm Power has made significant progress in executing its strategy to enhance shareholder value. The company recently deployed about $1.2B of capital to acquire various businesses, increasing its asset base. TerraForm Power also established a scale European platform to support growth, enhance existing asset value, while rolling out long term service agreements for wind fleet that are expected to yield $20M of annual cost savings.

The company also recently implemented a solar performance improvement plan, which is expected to generate $11M of increased annual revenue, including $8M compared to 2018 baseline. As part of its growth initiative, the company invested $28M in organic growth with an average expected return on equity of 19 percent.

TerraForm Power announced about a definitive agreement that the company entered into to acquire a high-quality, and unlevered distributed generation platform with over 320 megawatt capacity in the United States. This major acquisition was from the subsidiaries of AltaGas for a total purchase price of $720 million. “Following the close of this transaction, TerraForm Power is expected to own one of the largest portfolios of distributed generation in the United States. The acquisition will increase TerraForm Power’s average contract duration to 14 years and enhance its resource diversity,” says Stinebaugh. “Furthermore, 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 and have commercial and operational upside that we can extract through our integrated operating platform.”

Making the Future Greener

TerraForm Power’s innovative portfolio represents one of the largest distributed generation platforms in the United States that comprises over 291 megawatts of commercial and industrial solar assets, with about 21 megawatts of residential solar assets and approximately 10 megawatts of fuel cells. Stretched across about 20 states and in the District of Columbia and with more than 100 industrial as well as commercial customers, the portfolio comprises assets with an average age of 3.5 years. It also has power purchase agreements with an average investment-grade credit rating of A+/A2 and a remaining term of over 17 years.


TerraForm Power is primarily focused on extracting incremental value from the portfolio by cross-selling additional products such as storage and back-up generation solutions. The company provides these offerings to its commercial and industrial customers, helping them reduce the operating and maintenance costs by leveraging the scale of what will be a combined 750 megawatts distributed generation portfolio.

However, in the long run, the company seeks to finance its equity investment by opportunistically selling minority interests in stabilized wind assets for which there is a limited opportunity to incorporate additional value going forward. TerraForm Power also expects their acquisition plans to be modestly accretive to CAFD in 2020 and over the next five years.

- Laura Davis
    September 26, 2019
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Company
Terraform Power

Headquarters
New York, NY

Management
John Stinebaugh, CEO

Description
TerraForm Power is an integrated renewable power company clearly focused on providing an attractive and sustainable total return to the investors by effectively utilizing renewable energy sources. The company is an owner and operator of a best-in-class renewable power portfolio including solar and wind assets primarily in the U.S.These premier assets are underpinned by long-term contracts that produce stable cash flow. TerraForm Power is ideally positioned to capitalize on the growth in renewable power generation. TerraForm Power has considerable potential to grow both organically and through the acquisition of new facilities, including through its sponsor and majority shareholder Brookfield Asset Management—a leading global alternative asset manager with more than $250 billion of assets under management

Terraform Power News

TerraForm Power to Acquire Large-Scale U.S. Distributed Generation Platform

NEW YORK: TerraForm Power, Inc. (Nasdaq: TERP) (“TerraForm Power”) announced that it has entered into a definitive agreement to acquire a high-quality, unlevered distributed generation platform with up to ~320 megawatt of capacity in the United States from subsidiaries of AltaGas Ltd (TSX: ALA) for a total purchase price of $720 million.

“Following the close of this transaction, TerraForm Power is expected to own one of the largest portfolios of distributed generation in the United States. The acquisition will increase TerraForm Power’s average contract duration to 14 years and enhance its resource diversity.” said John Stinebaugh, CEO of TerraForm Power. “Furthermore, 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 and have commercial and operational upside that we can extract through our integrated operating platform.”

Transaction Highlights

• High quality asset base in attractive markets. The portfolio represents one of the largest distributed generation platforms in the United States, comprised of 291 megawatts of commercial and industrial solar assets, ~21 megawatts of residential solar assets and ~10 megawatts of fuel cells. Diversified across 20 states and in the District of Columbia and with over 100 commercial and industrial customers, the portfolio is comprised of assets with an average age of 3.5 years that have power purchase agreements with an average investment grade credit rating of A+/A2 and an average remaining term of over 17 years.

• Attractive upside potential. TerraForm Power’s business plan is to extract incremental value from the portfolio by cross-selling additional products such as storage and back-up generation to its commercial and industrial customers and reducing operating and maintenance costs by leveraging the scale of what will be a combined ~750 megawatts distributed generation portfolio.

• Accretive recycling of capital. TerraForm Power will seek to finance its equity investment by opportunistically selling minority interests in stabilized wind assets for which there is a limited opportunity to add additional value going forward. TerraForm Power expects the acquisition to be modestly accretive to CAFD in 2020 and over the next five years.

• Attractive returns. TerraForm Power expects to generate returns on equity on this investment within its targeted range of 9% to 11%.

Funding

TerraForm Power plans to initially fund the acquisition with a $475 million bridge facility and draws on its corporate revolver. Permanent financing is expected to be comprised of ~$475 million of project-level debt on this unlevered portfolio that is sized to investment grade metrics and proceeds of ~$245 million from the sale of minority interests in identified North American wind assets.

Timing

The transaction is subject to customary closing conditions and is expected to close in the third quarter of 2019.