Project Finance and the Cost of Capital

On 21 April 2016 SunEdison, then one of the largest renewable-energy developers in the world, filed for Chapter 11 in New York with about $16 billion of liabilities (reported; other summaries give "more than $11 billion of debt", on a different basis). Its shares closed that day at about $0.34. Nine months earlier, in July 2015, they had traded at about $33, and the company had been worth about $10 billion (reported).

SunEdison was the product of two businesses. One was MEMC, the silicon-wafer maker that Monsanto had set up in 1959 near St Louis. The other was SunEdison LLC, founded in 2003 by Jigar Shah around an idea that changed American solar: a business would let a developer put panels on its roof and simply buy the electricity at a fixed price under a long-term power-purchase agreement, with no up-front cost, while the developer owned the system and sold the tax credits to financial partners (reported). MEMC's chief executive, Ahmad Chatila, bought SunEdison LLC in November 2009 for about $200 million to move from wafers into projects. By 2013 the projects were the company; MEMC took SunEdison's name.

The growth was financed by a new instrument. On 23 July 2014 SunEdison floated TerraForm Power at $25 a share, a listed company that would own contracted solar and wind plants and pay out most of their cash as dividends. It had the right to buy projects from SunEdison, its sponsor, which controlled it. A second yieldco, TerraForm Global, for emerging markets, raised $675 million at $15 a share on 31 July 2015 (reported). In between SunEdison agreed to buy the wind developer First Wind with TerraForm Power for about $2.4 billion (announced November 2014, closed January 2015), and on 20 July 2015 agreed to buy the residential installer Vivint Solar for about $2.2 billion. Over the three years before its bankruptcy it was reported to have spent about $18 billion on acquisitions and raised about $24 billion of debt and equity.