Georgetown made national news last week when it was announced the city signed a 25 year contract with SunEdison to purchase 150 megawatts of capacity produced by a 600,000 panel photo-voltaic array to be constructed in West Texas. The city had previously signed a 144 megawatt contract with EDF Energy Renewables for wind generated electricity.
Let us first focus on the solar power agreement. The press reports are very positive for the city and its management, however, several very important questions have yet to be asked or answered with respect to the contract.
1. Is there an escalation clause that allows the price to the city to be increased? Under what conditions are price increases allowed?
2. Are there penalty clauses to be invoked in case the contractor is unable to perform (deliver electricity)?
3. Is the city aware that SunEdison has not been profitable over the last 5 years? Their market cap is $6.5B and their Levered Free Cash Flow over the last 12 months is -$1.5B. They are hemorrhaging money at a tremendous rate! They have approximately $7.2B in debt. This is not a company that gives confidence that they can perform up to the terms of the contract! From an investors point of view, this company would appear to be a highly speculative investment.
4. Is the city aware that SunEdison plans to transfer the solar plant and contract to a subsidiary company (TerraForm Power) after construction is complete? What are the implications of that?
5. Is the city aware that according to Barrons, "more than half of the value created by SunEdison's yieldco (TerraForm Power) comes from tax benefits". As the editor of the Sun newspaper asked in an editorial last week, "what happens when the subsidies expire"? The subsidies are set to expire in 2016 unless the Congress renews them. That may or may not be a good bet! It has been estimated that the tax credit allows a power generation company to reduce the price from about 8 cents-per-kilowatt-hour to about 5 cents. How is the city protected in the event the subsidies are not renewed?
6. Does the city have a backup plan in the event either the solar or wind power generators are unable to deliver the necessary power?
The city needs to share the contracts and their terms with the citizens of Georgetown as well as their backup plan if either company cannot deliver as per their contracts.
Steady, dependable electric power is necessary for the city's continued economic growth. Companies will want assurance their power needs will be met before they will locate in Georgetown.
Ask your city to answer these important questions.
This item was published in the Advocate newspaper this week.
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