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Investing in solar manufacturing stocks have been a big disappointment this year. In particular, the perception shapes up more and more like a disaster, because of China putting a sharp stop on demand. Since the majority of manufacturing is in China, a glut of material is pushing fear into investors to avoid a repeat of 2011/2012 great glut, which bankrupted many companies and weakened the survivors greatly. Fortunately, every risk resulting in fear offers an opportunity for profit and what followed great glut was a year of massive appreciation of values. 2013 was one of the best years for record gains, in fact, Canadian Solar Inc. (NASDAQ:CSIQ) was the greatest gain for NASDAQ exchange for that very year. While the general view on solar as the industry is struggling with demand versus supply condition is poor, the final view of the impact for tier one companies trading on the US markets is still out, at least for me. Investors are awaiting reports for the second quarter to learn conclusively if the impact is in fact as severe as it appears to be for all other tiers. I hold a personal belief that tier one companies can maneuver the situation a lot better than its lower ranking competitors. Bankability is one of the reasons, and that is experience learned in the great glut of 2011/2012. Top companies today were top companies then. They were losing money on margin, but they were not in a condition to become bankrupt by it. I think that severity of margin losses is going to be milder than in the great glut but will impact earnings nevertheless. Power generation will help those financial statements with revenue from electricity sales. Also in the case of Canadian Solar, plant sales, can and are expected to boost margin and cash flow. All the same, the market is reacting as the problem is on the horizon and the down adjustment on value is already in place. Canadian Solar trades at 50% down year to date. JinkoSolar Holding Co., Ltd. (NYSE:JKS) at 33%, Trina Solar Limited (NYSE:TSL) at 29% and First Solar, Inc. (NASDAQ:FSLR) at 25% loss. SunPower Corporation (NASDAQ:SPWR) is actually 51% lower YTD. I believe we are looking at the market assumption on the impact of disappearing earnings. Both, SPWR and CSIQ, embody lower than other names gross margins hence they are suffering the most. I think that in the case of Canadian, the gross margin impact, at one point, would have been somewhat misread, since it was building greater efficiency in cell and would produce better margin, but natural tragedy in Funing, China destroyed 1GW of solar cell production. I think it is reasonable to fear impacts on gross margin, while Canadian may not lose the ability to produce the guided volume. By the end of the 2015 and in early 2016 I have tried to refocus my objectives on yieldcos as they have offered, renewable focus investment, the opportunity for gains in the value of equity and dividend. It was an alternative to peaks and valleys of solar manufacturing stocks. I have chosen what had appeared the most undervalued one. TerraForm Power Inc. (NASDAQ:TERP) seemed to me to have more value than TerraForm Global Inc. (NASDAQ:GLBL) both on equity value versus its producing assets and level of dividend. I have expected SunEdison (SUNEQ) to be bankrupt perhaps longer than anyone at least on Seeking Alpha. Despite the condition, I was not concerned about the yieldcos. Unfortunately, ongoing concern with listing status and SEC had made me sell TERP, as I could not justify holding to it under my principles. Months later, while the situation in this aspect has not changed and the dividend has not been paid for some nine months, there is a very good possibility for TERP to be owned by another entity and cure all the listing ills. I suspect that level of dividend will no longer be as potent when the dust settles, but certainly, the comeback will be a sign of full health returning to yieldcos. As a resolution to TERP dilemma, I have invested subsequently after in Pattern Energy Group Inc. (NASDAQ:PEGI) and Nextera Energy Partners LP(NYSE:NEP). I looked at the dividend levels and equity, both offering stability and seeing growth this year. PEGI has have done remarkably well in this aspect. I have got only a small benefit from those gains as I traded them prematurely into shares of the manufacturers what I thought were experiencing a new bottom. Both yieldco stocks continued to sail away adding value in the meantime, while manufacturers continue to falter. Trading in and out to repair the impacts of this mistake, I have recently made a decision to invest in Canadian equity of a renewable yieldco called TransAlta Renewables Inc (TSE:RNW). In my spectrum of yieldco interest, it was one among already mentioned PEGI, NEP and also NRG Yield, Inc. Class C (NYSE:NYLD). I think that yieldcos have crept up in value in the last couple of months, in particular as a reflection of the positive resolution to SUNEQ yieldcos. As a confirmation of it, yields on dividends, have normalized to the region of 4 to 6% and moreover against visionaries drawing from oil price impacts, they did not lower dividend levels. TransAlta, in my opinion, has still relative space to gain value in equity. The parent company is against the wall with a decision on some 4GW coal generation to be retired by 2030 in my home province of Alberta. I think for both, this leads to investment into renewables with higher expediency and in particular, in solar. TransAlta Renewables does not have a single MW in solar, while the parent has bought and most likely will transfer 21MW acquired in the US to it. As I mentioned, the interest in the projects and portfolio of SUNEQ yieldcos put a positive light on other yieldocs, which have been already saved from the volatility of solar manufacturers. I think this trend is to continue. Still, the risk to own for a new buyer, SUNEQ yieldcos are very attractive to commercial, institutional ownership giving other names an opportunity to serve as an alternative eliminating the risks. The profile of yieldcos appears to be an oasis of peace in the sea of volatility what future may hold for solar manufacturing. I think, in the current situation, what is happening in China and in addition to the US elections’ outcome which may put Donald Trump into the presidency, Chinese solar manufacturers have a particularly tough test to pass and certainly face heavy, down pressure. On the other hand, If Hilary Clinton is elected, with no exposure to China, FSLR and SPWR could be gaining a lot more attention, and along with it, appreciation. In this scenario, in my opinion, Chinese stocks would remain only modestly priced. To remain invested in yieldcos is part of my strategy for solar to sort itself during those events and to watch for the signs of the opportunity to appear. A lot less potential than 2013, the effective return of 100% is my objective this time, not a concern while drawing a regular dividend during the waiting period. The catalysts to watch start with the Q2 results with a focus on the Q3 2016 guidance and commentary for the year. First Solar reports this coming week to offer the first glimpse in Q3. Then we have SunPower on the 9th. For yieldcos, quarterly results do not have the same impacts, but two of them report on the 9th, NYLD, and RNW.TE. Chinese are yet to announce their calls, but any indication for Canadian Solar on plant sales this year and plans for 2017 would be interesting. The election results, as mentioned in above paragraph, are also very important, and this is a critical catalyst in my view. Lastly, global demand for solar is expected to growth every year, but currently, 2018 seem to model as the year of financial progress for solar manufacturers. The presence of indicators like improved gross margins, greater EPS, potential IPO for Canadian Solar’s yieldco using sympathetic market conditions, could become unique factors to trigger re-investment sooner. In the final thought, yieldcos seem to be independent of above concerns, and I consider them a perfect vehicle to sit out another shake-up in the solar industry.

The last couple of weeks were seemingly not good for already struggling SunEdison (NYSE:SUNE). In a couple of instances, corporate entities have used language pointing to potential insolvency of the company. In both cases, this perception had an immediate consequence. One led to the cancellation of PPA agreements opening SunEdison to a review of $336M bond elimination made with Madison and Shaw. Plants used as fixed assets to pay in part the obligation have no longer contract for electricity, creating a need for replacement or other means to fill the gap for both lenders. In a second, as reported by Bloomberg, New York State Supreme Court Justice Charles Ramos on Feb. 11 granted the request from Latin America Power (LAP) investors to block any asset transfer pending a Feb. 25 hearing on whether the hold should continue throughout arbitration of the dispute. Quoting Law360: “The investors told Justice Ramos that SunEdison and its affiliated companies are widely acknowledged to be in such deep financial trouble that attachment is warranted before the arbitration concludes, which they say will take a year or more: SunEdison Inc.’s CEO announced to its investors that it would no longer transfer or ‘drop down’ assets to its yieldcos and that instead SunEdison would dispose of assets by transferring them to unidentified third-party ‘affiliates’ and ‘warehouses,’” the suit said. “Such assets, once transferred, will be ‘ring fenced’ from respondents’ creditors and will likely be unavailable to satisfy an arbitration award against respondents.” The order reads below: "Respondents are hereby restrained and enjoined from concealing, transferring or removing their assets, accounts or other property that may be subject to attachment, without fair consideration or in the ordinary course of business," What adds peculiarity to this is the fact LAP is owned by Partia, a private company owned by Blackstone Group (NYSE:BX). Yes, no mistake the same company, which owns the majority of Vivint Solar (NYSE:VSLR), a company in the process of merging with SunEdison. TerraForm Power (NASDAQ:TERP) is also under the same order. SunEdison committed TerraForm to the purchase of Vivint’s assets, to complete the merger transaction along SunEdison commitments. Since merger, in my opinion, is not considered as an ordinary course of business, and since the transaction itself has been part of the lawsuit brought by Appaloosa Fund, managed by David Tepper questioning its fairness, there is an apparent collision course of the temporary restraining order against the merger. Appaloosa lawsuit if successful would enjoin TerraForm Power from merger agreement, yet SunEdison would be still obligated to buy Vivint. If Judge Ramos decided not to extend the order, under TerraForm enjoining, SunEdison would certainly become responsible for the $799M obligation of that transaction, adding to potential insolvency. It appears that Blackstone owned brands are in conflict, and it is naive to assume the conclusion that this outcome would be a surprise to lawyers seeking arbitration. So what is the game plan here? In my view, restraining order is in place to protect SunEdison from merging with Vivint if TerraForm got enjoined. I suspect that order would be extended under those circumstances and relinquished by some mutual resolution if Appaloosa lost. Since the order is to be argued on February 25th, and, at least, one analyst believes that that deliberation of Appaloosa case will be accelerated to come within the week of Feb. 16 when it was originally heard, this gives enough time for the temporary restraining order to come off or to be held. The situation would be complicated if Appaloosa case did not come before Feb. 25. Order if lifted would return conditions to a prior state, having no point. This is why I suspect order will not be lifted without Appaloosa ruling. Would such order be modified or already allow the merger? I think it would be judicially difficult to argue the same transaction as fair in one court while being deliberated in another court as potentially unfair. This could have an undesired outcome if TERP injunction were granted. It is clear, by the definition of the order to protect assets of SunEdison from disappearing. The merger does the opposite. All above seems to show Blackstone’s concern about SUNE facing merger without TERP transaction, but bringing risk to Vivint’s future, which does not appear to be in good shape as well? I think Blackstone wants to control the game, and this is the move to ensure the game is still played. If TerraForm is enjoined, a case can go to trail. While this happens, Vivint assets could be sold to third parties. Restraining order buys time to do so and makes the injunction harmless. When all is sorted out SunEdison is still able to merge with Vivint, probably handing more game pieces to Blackstone and perhaps take steps to extract money from yieldcos. It can pull out its commitments to Interest Payment Agreements with both, GLBL and TERP, saving about $180M and $38M in this order. It can ask for loans considered as an investment and costs carried to be paid back, producing cash injection of $87M from GLBL and $15M from TERP. Finally, it can sell equity in TerraForm Power as control over it would become gun-shy under the injunction. The value of those shares could dramatically increase if injunction is granted, also helping elimination of the gap in $336M agreement.

End of the last year was a year of a broken record for solar and this year seems to be the same. Oil, the nonsensical measure against the solar energy struck again. The commodity prices lost a shirt for fossil fuel companies and managed to pull solar stocks down. I think by now someone must have written a book on limited-to-none connection of oil to electricity in the US, with all efforts in vain. Today the story of solar is a story of healthy industry with some sick players caught up in the global downturn. While one can see the value, the herd mentality keeps it subdued with funds and individuals equally selling without much of differentiation, but perhaps First Solar. So how is solar investor able to set apart from the anguish? Only, by doing something to receive tangible benefit in the duration, and in my opinion, such a benefit is in yieldcos and their dividend. Members of the panic team would immediately point out to Energy (fossil fuel based) MLPs, and their failing structures as a red flag and, of course, the fragility of the company like SunEdison, something nobody risk-averse would get engaged. While one needs emotional endurance to see end, one way or the other, to SunEdison, both, TerraForm Power Inc (NASDAQ: TERP) and TerraForm Global Inc (NASDAQ: GLBL), are an opportunity, which has been created by the crumbling of this company. Yes, without weak SunEdison we would not be able to see such a low prices in its yieldcos. SunEdison has been hurt by perception and, to a degree, reality of liquidity problems, with many casually and wrongly connecting yieldcos to those conditions. Now, when insolvency is being quoted in relationship to SunEdison it is important to note as per the company’s disclosure what separates them: “We include both entities in our consolidated financial statements on the basis that we control of TERP and GLBL. However, TERP and GLBL and their subsidiaries are separate legal entities with their creditors and other stakeholders. The renewable energy generation assets that TERP and GLBL and its subsidiaries have acquired and expect to acquire in the future are and will be legally owned by those entities and are not available to satisfy claims of creditors of SunEdison or our other non-TERP or GLBL subsidiaries. Except to the extent provided in certain agreements entered into with TERP and GLBL and its subsidiaries with respect to acquisitions and for the receipt of selected services and financial support from SunEdison, SunEdison has no obligations with respect to TERP or GLBL or for the benefit of its creditors.” This legal statement does not control the market’s behavior even though it offers a comforting message if insolvency proceedings took place. If something bad happened to SunEdison, the tremors would affect prices of all, but in a long term, yieldcos would be measured by own assets and value of dividends, and none of them could be taken to cover for SunEdison mishaps. What about the dividend and collapse of the MLP? The collapse of MLP is a result of the commodity prices and how revenues are generated. Price of oil has clear connection to the level of income, and the commodity pricing has, if not immediate than delayed, impact on dividend levels. The fluctuation of energy generation and their costs in yieldco structure with solar or wind is not susceptible to cost shifts, as there is no cost variation. The sources of energy (sun and wind) are free, and the upfront infrastructure costs and maintenance are the only ones measured. This is why utilities do well in the cheap commodities’ market and MLPs in high one. Renewable yieldcos should do well in both, in fact, they are utilities themselves without ownership of grid infrastructure (for some that is the case like Abengoa Yield) Therefore, the dividend of the renewable yieldco is secured, and change to it is only available to management’s discretion rather than forced by the market conditions like in case of MLP. The same stability also creates dependable borrowing profile. All those things are new to establishment and individual investors. In general, the market is even more limited to appreciate those subtle details when distressed sponsor dominates the news. Depending on the outcome of injunction, TerraForm Power may end up with over 3GW of renewable assets having slightly greater solar content in 2016. Global on the other hand, including some recent commitments, would be expected to reach closer to 2GW. The level of cash available for contribution today offers $1.40 today for TERP and $1.10 for GLBL in yearly dividend, yielding 16% and 39% respectively. Those yields are reflective of fear and misconception about the equity of those companies. By the definition and by the design, they are not riskier than any other yieldco on the market. Already mentioned Abengoa Yield is a living proof of having a sponsor in legal receivership which has not prevented the company`s equity to be at $16 per share and yielding around 11% on its dividend. Value of 8point3 Energy Partners LP is summoned by strength of its sponsors, First Solar, and SunPower, the market perhaps embellishing quality of the renewable assets and level of cash available for distribution in this case, but giving it the yield at normal level of 5%. In a corresponding comparison of assets, locations, PPAs, and timelines it is not hard to notice TERP superiority, besides already established massive scale, but here the company is shadowed by crippled SunEdison opposite to First Solar strength. I anticipate that the fourth quarter results, which are expected this week, will confirm the independence from the SunEdison troubles and to speculate further, embrace dividend program, therefore boosting value of equity profile of both companies. Of course, there are legal debacles, and there is a matter of Vivint acquisition for TerraForm. Once more they are some of the turbulence one should consider before investing. While I belong to the camp hoping that injunction will take place, a loss of this ruling is not an end to TerraForm Power potential. In my article published on SA, I have considered what may happen when either outcomes are out. In a summary, I concluded, and still hold this belief today that investment in TerraForm Power, and adding Global now, can weather the storms of legal debacles and in a long term be very profitable.