SunEdison (SUNE) investors received yet another piece of bad news on Wednesday, as Hawaiian Electric (NYSE:HE) issued notice that it had chosen to terminate their agreements for three large scale solar projects. These projects, totaling 112MW, were among those sold to DE Shaw as part of a recent debt cancellation deal.
The termination is a blow for the company, given that the projects were worth $350mil, and SUNE had already spent $42mil on initial development. In a long document to the Hawaii Public Utilities Commission [HPUC], HECO lays out its rational for terminating the projects, noting that SUNE had missed multiple deadlines and that HECO had concerns about SUNE's current financial situation. The utility argues that it had hoped the projects would be in service by the end of 2016, but that this no longer seemed possible, given the delays that had occurred thus far.
On their end, SUNE argues that these projects had seen many delays at several stages of development, for which both companies shared responsibility. The current delays were related mainly to the sale of the projects to DE Shaw, which were in part contingent upon HECO forbearing their right to terminate the projects. Thus the situation seems to have been a bit of a catch-22. DE Shaw was not prepared to complete the purchase without a guarantee that the projects wouldn't be cancelled, while HECO didn't want to eliminate their option to cancel.
SUNE filed their own letter to HPUC on the 16th, emphatically disagreeing with Hawaii Electric's analysis and conclusion that they were right to terminate the leases. The company is putting together a more complete package for HPUC to review, which will be sent by February 23.
What is clear is that aside from SUNE potential losses on work completed, this decision hurts HECO's customers the most. SUNE still expected the projects to be completed by the end of 2016, and they would have provided customers with much cheaper power. HECO argues that delays in completion of the projects were hurting their customers, but the outright termination of the projects means that it may take years until new projects can be developed and completed to replace these.
I don't have the experience needed to figure out what will happen next, but my guess is that SunEdison will work very hard to convince HECO and the HPUC that this is a terrible decision, and that the termination should be rescinded. In the meantime, it is yet another problem for the company.
I continue to hold my position in SUNE, as I believe the company is more likely than not to receive a positive judgment in their case regarding the injunction against Terraform Power's (NASDAQ:TERP) right to purchase Vivint Solar's (NYSE:VSLR) operating solar leases. I was also happy to see the news release today regarding the companies divestiture of some of their solar material operations. However, this is clearly an extremely speculative stock, and additional dilution or even bankruptcy are clearly options if certain decisions continue to go against the company.
A much safer option would be to buy TERP at current levels. The company is currently trading around $8.50, but has net assets of $18/share, and the dividend is close to 20%. I also believe that TERP would do well actually buying the Vivint assets, as I lay out in another recent article.
Disclosure: I am/we are long SUNE, TERP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.