Solar Frontier Americas, the US solar development business of Japanese energy major Showa Shell Sekiyu, expects to double its US-based portfolio to 2 gigawatts in the next couple of years.
The move to be a major US renewable independent power producer is part of a strategy shift for Showa Shell and Solar Frontier Americas to expand its integrated solar business.
That integrated business has operated at a loss in recent years. Showa trimmed operating losses within that division to 1.9 billion Japanese yen ($16.7 million) for the nine months ending 30 September from 5.9 billion yen ($51.8 million) in losses from 3Q17.
Solar Frontier Americas began developing its own solar projects in 2014 and operates a solar power portfolio of about 1 gigawatt (GW). Its M&A plans could put it among the largest solar power producers in the country.
The largest solar power producers in the US by capacity of installations are First Solar (7.66 GW), 8Minutenergy Renewables (7.6 GW), Cypress Creek Renewables (7.5 GW), sPower (5.34 GW) and NextEra Energy Resources (4.35 GW), according to Energy Acuity.
Solar Frontier Americas CEO Charles Pimentel said the company has reviewed numerous acquisition opportunities and is currently short-listed to acquire a large solar project in an active sale process set to close in early 2019. He declined further comment due to confidentiality reasons.
The company was the winning bidder in two processes last year, Pimentel said, acquiring a 54 megawatt (MW) California project from an undisclosed seller and the 210 MW Mustang Two solar project from Canadian Solar’s development business Recurrent Energy, which the companies jointly announced on 18 December.
That stands in contrast to other Asian and European energy businesses that have sought to buy in to the North American power market.
Mergermarket has reported on cross-border sales involving US renewable energy assets in which Asian bidders such as Korea Electric Power (KEPCO) and China’s Shenzhen Energy have bid on assets but have been unable to win a deal. In some instances, these bidders have spent a year or more in due diligence or have been blocked by on the basis of security concerns over US infrastructure assets by federal regulators.
In auctions, Pimentel said Solar Frontier Americas has competed in processes with up to 10 competitive bidders. “In these processes we’re not being eliminated at least until the late round of [sale] processes,” he said.
The company sources deals internally with its 30-member business development and project finance team in San Francisco, San Jose, California; and Reno, Nevada offices, he said. The company is receptive to buyside referrals but typically doesn’t use external advisors, Pimentel said.
Lower Tax Credits Means More M&A
The phase-down of the US federal investment tax credit (ITC) for solar development to 26% from 30% at the end of 2019 has led to a rapid scale up of new development-stage solar projects in the western US, Pimentel said. As such, the next 12 months are expected to be active for large project and portfolio sale processes, he said.
The ITC steps down to a 26% cost reimbursement for projects that begin construction in January 2020, and then lowers to 22% in 2021 before leveling off at 10% in 2022 for utility projects.
Solar Frontier Americas is interested in buying solar plants in the range of 20 MW to 300 MW per project and portfolios of late-stage assets, Pimentel said.
For now, Solar Frontier is agnostic to geography, though its California HQ tends to keep the majority of its focus on deals in California and the Southwest region, he said. California is a boon for solar developers’ business as the state recently set a goal of generating 100% of its power from renewable energy by 2045.