Overview of SunEdison—An Outperformer in the Solar Power Industry (Part 1 of 13)
SunEdison’s Place in the Solar Energy Industry
By Saania MalikJul 15, 2015 5:01 pm EDT
History
SunEdison (
SUNE), formerly known as MEMC Electronics Materials, was founded in 1984 in Delaware as a silicon wafer manufacturer for the semiconductor industry. In 1995, the company went public. MEMC acquired SunEdison LLC in 2009, and the name change took place in 2013 after the company shifted its focus toward solar energy.
Recent performance
In 2012, solar stocks saw a steep decline and sell-off due to an industry-wide oversupply, which led to falling revenues and lower margins. Most stocks have since recovered. In line with the industry-wide revision of solar stock prices, SunEdison’s stock price rose 623%, going from just over $4.00 in January 2012 to $29.59 as of July 1, 2015.
During the same time frame, industry peer First Solar gained 29%, while the Guggenheim Solar ETF (
TAN) gained 47%. Interestingly, FirstSolar is the top holding in the Guggenheim Solar ETF, making up more than 8% whereas SunEdison makes up just over 4%.
Overview: business activities
SunEdison develops and sells photovoltaic energy solutions. It also develops, manufactures, and sells silicon wafers to the semiconductor industry. The company also owns and operates clean power generation assets.
The company’s primary business activities are divided into its three segments: the Solar Energy segment, the Semiconductor Materials segment operated under the publicly subsidiary SunEdison Semiconductor Ltd. (SEMI), and TerraForm Power operated as a
yieldco under Terraform Power (
TERP). To find out more about these segments, read on to the next part of the series.
Key competitors
SunEdison’s key competitors in the solar energy business include renewable energy providers NRG Energy (
NRG), NextEra Energy (
NEE), SunPower (
SPWR), First Solar (
FSLR), Solar City (
SCTY) in the US and Enel Energia, E.On, and JUWI Solar in Europe. Because SunEdison produces energy from its own projects, it competes directly with renewable energy production of large utilities like NRG Energy and NextEra Energy. These two companies, along with SunPower and First Solar, all have launched their own yieldcos, or have plans to do so in the near term.
Key competitors of the semi-conductor business include established manufacturers Shin-Etsu Handotai, SUMCO, Siltronic, and LG Siltronic. Each of these competitors is based outside the US.
Despite a steep climb in its stock price, SunEdison’s earnings have been either very low or negative since 2009. In subsequent parts of this series, we will address the causes of the company’s suffering profitability, as well as its potential for future turnaround.
PART 2
Overview of SunEdison—An Outperformer in the Solar Power Industry (Part 2 of 13)
Understanding SunEdison’s Business Model
By Saania MalikJul 15, 2015 5:03 pm EDT
Revenue generation model
SunEdison’s (
SUNE) business model is divided into three revenue segments: Solar Energy, Semiconductor Materials (SEMI), and TerraForm Power (
TERP). Combining the products and services in these three segments, the company’s operations span the
solar value chain—from polysilicon manufacturing to electricity sales.
SunEdison has a complex corporate structure with publicly traded subsidiaries handling two of the three operating segments. Over 60% of the company’s revenues come from the Solar Energy Segment. The company is currently undergoing restructuring efforts with the newest segment, TerraForm, taking on an increasing share of revenues.
Key customers and geographic reach
SunEdison has a diverse customer base in terms of user types as well as geography. Domestically, key customers of the Solar Energy business include commercial customers (retail chains and real estate property management firms), government customers (federal, state, and municipal), and utilities.
Internationally, the company has extended its geographic outreach to specific countries in Latin America, Europe, Middle East, and Asia, including Chile, Brazil, Italy, Turkey, Japan, and China. Within those countries, the company works with local project developers.
Key customers of the Semiconductor Materials business include notable firms like IBM (
IBM), Intel (
INTC), Samsung, and Taiwan Semiconductor Manufacturing Company. The company has deployed direct sales forces serving customers internationally, including in China, France, Germany, Italy, Japan, Malaysia, Singapore, South Korea, Taiwan, and the US.
These three segments are discussed in greater detail in the following parts.
PART 3
Overview of SunEdison—An Outperformer in the Solar Power Industry (Part 3 of 13)
SunEdison’s Solar Energy Business: Sales Mix and Revenues
By Saania MalikJul 15, 2015 5:03 pm EDT
Products and services
SunEdison’s (
SUNE) Solar Energy segment is vertically integrated across the solar value chain. The company focuses on interconnecting solar energy systems to the grid. Over 60% of the company’s revenues come from its Solar Energy segment.
The Solar Energy segment engages in the manufacturing, design, installation, financing, monitoring, operation, and maintenance of solar projects.
Segment operations and revenues
In order to support its downstream operations, the segment has manufacturing capabilities for polysilicon, silicon wafers, and solar modules. The company also sells these modules to third parties. Electricity is sold to customers through long-term power purchase agreements, as well as to government entities and utilities through
feed-in tariff agreements.
The company’s revenues are dependent on RECs (renewable energy credits) and PBIs (performance-based incentives). These are issued by regulatory bodies and utilities, respectively. RECs are sold to utilities that can offset their renewable energy generation requirements, or they can be sold to investors who sell them to utilities.
Operations and maintenance (O&M) services are also provided to non-SunEdison solar projects. These services consist of project monitoring, data collection, and corrective and preventive maintenance work. Additionally, the company offers portfolio management services to its customers. These services include maintenance of compliance matters and consolidation of financial reports. SunEdison also provides software applications and data analysis to enhance asset performance.
Revenue contribution
Solar Energy segment revenues increased over 30% year-over-year in 2014. The source of its revenue increase in the past year was mostly an increase in sales from energy production, as well as an increase in sales of solar materials.
However, over the past few years, revenues have been volatile due to fluctuations in the average selling price as well as due to business segment restructuring.
- In 2011 and 2014, segment revenues grew over 30% year-over-year.
- In 2012, segment revenues saw soft growth of only 2.3%, and in 2013 they fell over 30%.
The decline was mostly due to a shift in focus toward retaining solar projects instead of selling them off. To find out more about this strategic decision, read on to the next part of this series.
PART 4
Overview of SunEdison—An Outperformer in the Solar Power Industry (Part 4 of 13)
SunEdison’s Solar Energy Business: Strategy and Cost Control
By Saania MalikJul 15, 2015 5:04 pm EDT
Segment strategy
SunEdison aims to keep its solar power assets on its balance sheet. This is a two-fold strategy, allowing commercial customers to only pay for the output generated by systems installed on their property, avoiding the extensive upfront payments typically involved with power plants. This also enables customers to counter the price volatility of conventional energy because they can generate electricity in daylight hours, which is also when prices are highest.
Keeping assets on its balance sheet also provides SunEdison with the opportunity to drop the assets to its yieldco, TerraForm (
TERP), discussed later in this series.
Restructuring
SunEdison has been through significant restructuring since MEMC’s acquisition of SunEdison LLC. While its strategic aim is to provide a diversified product mix based on industry demand, the company has struggled with profitability during this restructuring.
Despite the strong growth in interconnected solar energy capacity, segment revenues have not followed the same trends, as shown in Part 3 of this series. In addition to volatile revenue, costs have increased significantly over the last few years. So what has been driving these costs and keeping the company from realizing positive earnings
