TerraForm Power Reports Fourth Quarter and Full Year 2018 Results

Freitag, 15.03.19 03:39
TerraForm Power Reports Fourth Quarter and Full Year 2018 Results
Bildquelle: iStock by Getty Images
NEW YORK –

TerraForm Power, Inc. (Nasdaq:TERP) (“TerraForm Power”) today reported financial results for the quarter and year ended December 31, 2018.

Highlights

  • Invested $1.2 billion to acquire Saeta Yield, S.A.U. (“Saeta”), a 1,000 MW portfolio of high-quality wind and solar assets located primarily in Spain that established a scale operating platform in Europe
  • Invested ~$28 million in organic growth initiatives with an average return on equity of ~19%
  • Progressed efforts to execute long term service agreements with General Electric (“GE”) for North American wind fleet that are expected to lock in annual cost savings of ~$20 million and enhance revenues through performance guarantees backed by liquidated damages
  • Completed solar performance improvement plan, expected to increase annual production by ~61 GWh and revenue by ~$11 million
  • Issued $650 million in equity to fund the Saeta acquisition at attractive terms pursuant to backstop arrangement with affiliates of Brookfield Asset Management
  • Raised ~$160 million of non-recourse debt in conjunction with the financing plan for the Saeta acquisition
  • Achieved upgrade of corporate credit rating from Moody’s to Ba3
  • Repriced $350 million Term Loan B yielding projected annual savings of approximately $2.5 million
  • Declared a Q1 2019 dividend of $0.2014 per share, an increase of 6% from Q4 2018, and implying $0.8056 per share on an annual basis

“During 2018, we made significant progress building the foundation to transform TerraForm Power into a fully-integrated renewable power company that delivers a sustainable, total return in the low teens to our shareholders,” said John Stinebaugh, CEO of TerraForm Power. “In 2019, we look forward to reaping the benefits from this foundation and further investing in our repowerings and other growth opportunities.”

Results

                       
      3 Months Ended

12/31/2018

    3 Months Ended

12/31/2017

    12 Months Ended

12/31/2018

    12 Months Ended

12/31/2017

Generation (GWh)     2,214     1,852     8,088     7,167
Net Loss ($ in millions)     (30)     (142)     (153)     (236)
Earnings (loss) per Share1     $(0.07)     $(0.31)     $0.07     $(1.61)
Adjusted EBITDA2 ($ in millions)     170     110     590     438
Cash Available for Distribution (“CAFD”)2 ($ in millions)     27     26     126     88
per Share1,2     $0.13     $0.18     $0.69     $0.62
               

1 Loss per share is calculated using a weighted average diluted Class A common stock shares outstanding. CAFD per share is calculated using a weighted average diluted Class A common stock and weighted average Class B common stock shares outstanding. For the twelve months ended December 31, 2018, weighted average diluted Class A common stock shares outstanding totaled 182 million, including issuance of 61 million to affiliates (for the twelve months ended December 31, 2017, this amount was 104 million). For the twelve months ended December 31, 2018, there were no weighted average Class B common stock shares outstanding (for the twelve months ended December 31, 2017, this amount was 38 million).
2 Non-GAAP measures. See “Calculation and Use of Non-GAAP Measures” and “Reconciliation of Non-GAAP Measures” sections. Amounts in 2017 adjusted for sale of our UK and Residential portfolios.

Financial Results

While we made much progress, 2018 was a transitional year for TerraForm Power. During the course of the year, we accelerated our blade inspection and repair program due to the Raleigh outage and to prepare to turn over operations of our wind farms to GE. This resulted in a significant increase in turbine downtime. In addition, we lost a considerable amount of production from our solar fleet, which operated at an availability of 91% in the first half of the year prior to the initiation of our performance improvement plan.

For the full year 2018, TerraForm Power delivered Net Loss, Adjusted EBITDA and cash available for distribution (“CAFD”) of $(153) million, $590 million and $126 million, respectively. This represents a decrease in Net Loss of $83 million, an increase in Adjusted EBITDA of $152 million and an increase in CAFD of $38 million, compared to 2017. The improvement in our results primarily reflects two fiscal quarters of contribution from Saeta. This contribution was offset by below average North American wind production in part due to an especially strong El Niño and challenging ERCOT pricing dynamics as a result of maintenance of the transmission system, which reduced transfer capacity during peak wind resource season. Thus far in 2019, power prices in the Texas panhandle have improved as the transmission system has been fully on-line.

In 2018, North American wind production was 10% below our LTA. Of the shortfall, 4% can be attributed to poor wind resource, particularly in Hawaii and the Midwest, 2% to abnormally high non-reimbursable curtailment, 2% to the impact of the Raleigh-related outages and 2% to downtime for blade inspections and repairs. Our solar and regulated platforms performed in-line with expectations for the most part. In our solar platform, significantly reduced curtailment in Chile due to debottlenecking of the transmission grid offset low availability in the first half of the year. In our regulated platform, lower than expected solar resource was offset by wholesale electricity prices that averaged 10% higher than the prior year.

Liquidity Update

We continue to progress the execution of the $350 million non-recourse debt component of our financing plan for the Saeta acquisition. We expect to close our third and fourth project financings, raising proceeds of ~$100 million and $90 million, respectively by the end of the first half of 2019.

We also recently launched the refinancing of our wind facility in Uruguay (~95 MW). Based on negotiations with lenders, we are planning on extending the tenor, improving sizing parameters and reducing the margin. Upon expected closing in the second quarter, we anticipate upsizing the financing by approximately $60 million. To further support corporate liquidity, we released $24 million in cash in December by collateralizing reserve accounts with letters of credit at two wind projects in North America. In addition, we launched the consent process for certain Spanish projects to replace cash funded reserve accounts with letters of credit.

Operations

To date, we have signed LTSAs with GE for 10 of 16 projects in our North American wind fleet. In parallel, we have made significant progress obtaining the required lender and tax equity partner consents and are in negotiations with service providers for the early termination of existing service contracts. GE is now fully operating six sites, and we anticipate handing over the remaining sites in the first half of this year.

Beginning in Q3 2018, we solicited proposals for LTSAs for 500 MW of our Spanish wind fleet. The fleet is comprised of turbines manufactured by Vestas, GE, Siemens and Gamesa. Based on proposals that we have received, we are in the process of replacing the current operator of the wind farms with the respective manufacturers. In December, we reached a preliminary agreement with Vestas to extend the O&M contract for our Uruguayan wind farms in exchange for an improvement in technical and economic terms. Finally, we recently launched an RFP to improve the O&M contract terms for our North American solar fleet. Thus far, there has been very strong interest from large third-party providers. Our goal is to lower our cost and improve the alignment of interests by implementing production guarantees with penalties and bonuses based upon performance, similar to our North American wind LTSAs. As a result of these initiatives, we believe that we will be able to reduce annual O&M costs by approximately $6 million, commencing in the second half of this year.

Finally, for our North American and European wind farms, we have commenced the technical analysis and permitting to implement turbine optimization technology, including GE’s Power Up offering. Upon completion, we expect to increase production across our wind fleet and generate approximately $2 million of incremental revenue.

Growth Initiatives

During the year, we continued to advance the 160 MW repowering of our New York wind farms. We believe that there is strong support in the state for investment in renewable power, particularly with Governor Cuomo’s vision for a “Green New Deal” to achieve a 100% carbon-free power grid by 2040. Through engagement with key government stakeholders, including the Governor’s office, the Department of Public Service, and the New York State Energy Research and Development Authority (“NYSERDA”), we have built a strong base of support for a proposal that would benefit our repowerings. In January 2019, NYSERDA expressed support for a plan which includes a greater allocation of renewable energy credits (“RECs”) for repowerings based on their projected increase in production over the status quo, which was largely based on our proposal. On a parallel path, there is a bill in the New York State legislature that would require all electricity suppliers to procure RECs from renewable generators built before 2015. While it is unclear how these processes will unfold, it is encouraging that both the key regulatory agencies and the state legislature are looking to create a competitive market for RECs generated by repowered facilities.

In light of our progress to date, we have accelerated the pace of our repowering efforts in New York. Since we can build these wind farms at a 40% discount to greenfield projects, we plan to replace the existing Clipper turbines that have been derated and have significant operating risk going forward, and we expect to utilize production tax credit (“PTC”) safe-harbored turbines that would increase production by 25% to 30%, we believe we can earn returns above our target range of 9% to 11% on equity based on the existing incentive regime and current wholesale power market prices. If we are able to obtain additional incentives and/or we are able to obtain premium pricing for renewable power, we could achieve significant upside. Finally, we are in discussions with Hawaiian Electric to evaluate options for repowering our Kahuku wind facility on Oahu island. We believe that this project has an attractive value proposition for all stakeholders. Hawaii has a very aggressive goal of 100% carbon free power generation by 2040. This repowering would increase production from Kahuku by 30%, and similar to New York, we would reduce prospective operating cost and risk by replacing the existing Clipper turbines.

During 2018, we invested ~$28 million in organic growth initiatives, which we expect will earn a return on equity of approximately 19%. Highlights include acquiring 6 MW of solar assets under a legacy right of first offer for $4 million, investing $4 million to acquire minority interests, including tax equity interests, investing $4 million in the expansion of one of our solar farms and investing $11 million in our battery energy storage project in Hawaii. Furthermore, in December 2018, we invested $4 million to acquire a regulated 4 MW solar PV asset as part of our consolidation strategy in the fragmented Spanish renewables market.

Regulatory and Counterparty Update

In December 2018, the Spanish Government published a proposed law, which provides the option of keeping the regulated return at its current level of 7.4% for the next 12 years commencing 2020 for all renewable assets in operation before September 2013. This applies to all of our Spanish assets. In February 2019, following the failure to ratify its budget, the Spanish government announced that new elections will be held on April 28, 2019. Despite this uncertainty, we are optimistic that a favorable outcome on the regulated return will be achieved, in light of broad based support for renewable power amongst Spanish political parties as well as the recommendation of a 7.1% regulated return put forward by the CNMV, which is an independent Spanish state agency. However, with the pending election, this could delay the timeline for ratification of the law and could also result in a change to the proposed regulated rate of return.

Facing billions of dollars in claims over deadly wildfires in California, PG&E filed for bankruptcy on January 29, 2019. The bankruptcy filing has not resulted in an event of default for any of our projects with PG&E as an offtaker. At this stage, it is unclear whether PG&E will be able to reject its existing renewable power contracts. Even though our PG&E exposure is less than 1% of our portfolio, we have joined with other industry players to advocate for continuing to honor existing renewable power contracts.

Announcement of Quarterly Dividend

TerraForm Power today announced that, on March 13, 2019, its Board declared a quarterly dividend with respect to TerraForm Power’s Class A common stock of $0.2014 per share. The dividend is payable on March 29, 2019, to stockholders of record as of March 24, 2019. This dividend represents TerraForm Power’s fifth consecutive quarterly dividend payment under Brookfield’s sponsorship.

About TerraForm Power

TerraForm Power owns and operates a best-in-class renewable power portfolio of solar and wind assets located primarily in the U.S. and E.U., totaling more than 3,700 MW of installed capacity. TerraForm Power’s goal is to acquire operating solar and wind assets in North America and Western Europe. TerraForm Power is listed on the Nasdaq stock exchange (Nasdaq: TERP). It is sponsored by Brookfield Asset Management, a leading global alternative asset manager with more than $350 billion of assets under management.

For more information about TerraForm Power, please visit: www.terraformpower.com.

Quarterly Earnings Call Details

Investors, analysts and other interested parties can access TerraForm Power’s 2018 Full Year and Fourth Quarter Results as well as the Letter to Shareholders and Supplemental Information on TerraForm Power’s website at www.terraformpower.com.

The conference call can be accessed via webcast on March 15, 2019 at 9:00 a.m. Eastern Time at https://event.on24.com/wcc/r/1868899/535D3AA90E42BFE84348A1E0721D4251, or via teleconference at 1-844-464-3938 toll free in North America. For overseas calls please dial 1-765-507-2638, at approximately 8:50 a.m. Eastern Time. A replay of the webcast will be available for those unable to attend the live webcast.

Safe Harbor Disclosure

This communication contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These statements involve estimates, expectations, projections, goals, assumptions, known and unknown risks, and uncertainties and typically include words or variations of words such as “expect,” “anticipate,” “believe,” “intend,” “plan,” “seek,” “estimate,” “predict,” “project,” ”opportunities,” “goal,” “guidance,” “outlook,” “initiatives,” “objective,” “forecast,” “target,” “potential,” “continue,” “would,” “will,” “should,” “could,” or “may” or other comparable terms and phrases. All statements that address operating performance, events, or developments that TerraForm Power expects or anticipates will occur in the future are forward-looking statements. They may include estimates of expected cash available for distribution (CAFD), dividend growth, earnings, Adjusted EBITDA, revenues, income, loss, capital expenditures, liquidity, capital structure, margin enhancements, cost savings, future growth, financing arrangements and other financial performance items (including future dividends per share), descriptions of management’s plans or objectives for future operations, products, or services, or descriptions of assumptions underlying any of the above. Forward-looking statements provide TerraForm Power’s current expectations or predictions of future conditions, events, or results and speak only as of the date they are made. Although TerraForm Power believes its expectations and assumptions are reasonable, it can give no assurance that these expectations and assumptions will prove to have been correct and actual results may vary materially.

By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to: risks related to weather conditions at our wind and solar assets; the willingness and ability of counterparties to fulfill their obligations under offtake agreements; price fluctuations, termination provisions and buyout provisions in offtake agreements; our ability to enter into contracts to sell power on acceptable prices and terms, including as our offtake agreements expire; government regulation, including compliance with regulatory and permit requirements and changes in tax laws, market rules, rates, tariffs, environmental laws and policies affecting renewable energy; our ability to compete against traditional utilities and renewable energy companies; pending and future litigation; our ability to successfully integrate projects we acquire from third parties, including Saeta Yield S.A.U., and our ability to realize the anticipated benefits from such acquisitions; our ability to implement and realize the benefit of our cost and performance enhancement initiatives, including the long-term service agreements with an affiliate of General Electric; risks related to the ability of our hedging activities to adequately manage our exposure to commodity and financial risk; risks related to our operations being located internationally, including our exposure to foreign currency exchange rate fluctuations and political and economic uncertainties, the regulated rate of return of renewable energy facilities in our Regulated Wind and Solar segment, a reduction of which could have a material negative impact on our results of operations; the condition of the debt and equity capital markets and our ability to borrow additional funds and access capital markets, as well as our substantial indebtedness and the possibility that we may incur additional indebtedness in the future; operating and financial restrictions placed on us and our subsidiaries related to agreements governing indebtedness; our ability to identify or consummate any future acquisitions, including those identified by Brookfield; our ability to grow and make acquisitions with cash on hand, which may be limited by our cash dividend policy; risks related to the effectiveness of our internal control over financial reporting; and risks related to our relationship with Brookfield, including our ability to realize the expected benefits of the sponsorship.

The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data, or methods, future events, or other changes, except as required by law. The foregoing list of factors that might cause results to differ materially from those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties, which are described in our most recent Annual Report on Form 10-K and any subsequent Quarterly Report on Form 10-Q, as well as additional factors we may describe from time to time in other filings with the SEC. We operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and you should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

TERRAFORM POWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

       
(Unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2018     2017 2018     2017
Operating revenues, net $ 213,093 $ 135,539 $ 766,570 $ 610,471
Operating costs and expenses:
Cost of operations 74,752 42,331 220,907 150,733
Cost of operations - affiliate 7,377 17,601
General and administrative expenses 22,239 40,230 87,722 139,874
General and administrative expenses - affiliate 5,310 6,498 16,239 13,391
Acquisition costs (6,856) 7,721
Acquisition costs - affiliate 6,925 6,925
Impairment of renewable energy facilities 15,240 1,429
Depreciation, accretion and amortization expense 102,660   60,681   341,837   246,720  
Total operating costs and expenses 205,030   157,117   696,591   569,748  
Operating income (loss) 8,063 (21,578) 69,979 40,723
Other expenses (income):
Interest expense, net 72,349 55,254 249,211 262,003
Loss on extinguishment of debt, net 1,480 81,099 1,480 81,099
Gain on sale of renewable energy facilities (37,116)
Gain on foreign currency exchange, net (6,736 ) (366 ) (10,993 ) (6,061 )
Loss on investments and receivables - affiliate 1,759 1,759
Other income, net (6,972)   (135 ) (4,102)   (5,017 )
Total other expenses, net 60,121   137,611   235,596   296,667  
Loss before income tax benefit (52,058 ) (159,189 ) (165,617 ) (255,944 )
Income tax benefit (21,707)   (17,385 ) (12,290)   (19,641)  
Net loss (30,351 ) (141,804 ) (153,327 ) (236,303 )
Less: Net (loss) income attributable to redeemable non-controlling interests (5,893) (8,668) 9,209 1,596
Less: Net loss attributable to non-controlling interests (8,969)   (20,473 ) (174,916 ) (77,745 )
Net income (loss) income attributable to Class A common stockholders $ (15,489 ) $ (112,663 ) $ 12,380   $ (160,154 )
 
Weighted average number of shares:
Class A common stock – Basic and diluted 209,142 138,401 182,239 103,866
 
Earnings (Loss) earnings per share:
Class A common stock - Basic and diluted $ (0.07 ) $ (0.82 ) $ 0.07 <

Quelle: Business Wire

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