Shockwaves rippled through the power industry in November after SunEdison and its yield company TerraForm Power announced their $2.4 billion acquisition of First Wind. Paul Gaynor, formerly the chief executive officer of First Wind, has been working with the companies to integrate their businesses since the agreement. As executive v.p. of North America utility and global wind for SunEd, Gaynor is looking to leverage the new wind business over SunEd’s existing global reach. “We’re going to help bring the wind expertise layered on top of local expertise that SunEdison already has in place,” Gaynor tells PFR in an exclusive interview. Senior Reporter Olivia Feld sat down with Gaynor to discuss his new role and the wind strategy at SunEd.
PFR: Can you describe your new role at SunEdison. When exactly did you start and who are you going to be reporting to?
My title is executive v.p. of North America utility and global wind. Officially, the deal closed on Jan. 29, so that was my official first day. But we’ve been working, since we signed the deal on Nov. 17, 2014, on the integration and building the business and the business case for that position since that date. I work for Ahmad Chatila, who is the ceo of SunEdison.
PFR: Could you outline your new role at the company?
SunEdison has a pretty broad remit, they play along a lot of the downstream part of the solar industry, residential, distributive generation, commercial and industrial distributive, and then utility scale. With the acquisition of First Wind, they have a wind business,that has principally been North American in focus. We had been looking at a few international opportunities, but all of the assets are in the U.S.
Once we did the deal, we thought it would make a lot more sense to think about it in terms of customers. There’s a residential business within SunEdison, there’s a distributed generation business within SunEdison, and then there’s a utility business. It just so happens that the utility business is now wind and solar and that’s the part of SunEdison that I’m running. That’s the way the North American part of my job has been designed.
We also have a global wind mandate. That means that there are hundreds and hundreds of SunEdison development people around the globe that are doing solar development. They’re doing residential, distributed generation, utility scale, and there’s a fair amount of pent-up wind demand that this team has been seeing in a lot of markets. We’re going to help bring the wind expertise layered on top of local expertise that SunEdison already has in place.
It’s really like a plug-and-play from my perspective. One of the things I liked about it is, I don’t really have to build an international business. It’s there, there are people that have been there for years and years who have been doing this already. What we need to do is to bring the wind expertise to those teams. That is also a major effort going on right now in terms of organizing, hiring the right people and moving bodies around. There is a lot going on there.
PFR: What does the acquisition by SunEdison mean in terms of First Wind’s pipeline? What’s likely to be continued to be developed and what will potentially be sold?
We have a roughly 8 GW pipeline that we brought over and 1.6 GW of that is ripe in the next couple of years. Then, there’s a bunch of longer-term stuff.
PFR: What is likely to be sold on to TerraForm and to third parties? I’m interested in the future plans for that pipeline.
It’s a legacy First Wind pipeline, but also SunEdison has a legacy utility pipeline of their own in the U.S., so that is ours as well. That’s in my group. In terms of just rough numbers we’re targeting in the U.S., 2-2.5 GW in the next two years. Those are projects that have been identified already that mostly have PPAs and are either already under construction or are going to be in construction in 12-15 months, so that they can get operational by the end of 2016. That’s just a rough number for the North American part of the business. That does not include any international global wind.
In terms of what is being sold, all of that is going to be sold to TerraForm. SunEdison, I know historically their business model has been ‘we’re going to sell projects to third parties and make a profit margin.’ I think the conscious change in business model that Ahmad and others running SunEdison have made, is that they’re turning SunEdison into an asset ownership business. With all the projects that we’re developing, the intention is they will all end up in TerraForm.
Now there may be an exception here and there, where we decide for some strategic reason that we’re going to do a third-party sale. Certainly the base case and the bias is going to be to sell it all to TerraForm.
PFR: What’s the timeline for the 6 remaining GW?
That pipeline ranges say from today to 2020. That’s the rough vintage of the projects we have in that pipeline. The other thing I’ll say is that we are looking at a lot of acquisition opportunities with TerraForm to buy operating wind projects as well as development assets and late-stage development assets. We’re doing a fair bit of that right now, so that would be on top of what you’re seeing here in this 2-2.5 GW pipeline.
PFR: Can you provide any more information regarding what sorts of projects you are looking to acquire under TerraForm?
So it would be SunEdison acquiring, finishing the development, financing, building and then selling to TerraForm. That’s the way to think about it.
PFR: Can you provide an idea of how many gigawatts you’re looking to acquire from those third-party projects?
Think about it like a funnel. The funnel is very wide at the top, but how many we’ll actually get through over the next couple of years is tough to say. The stuff we’re looking at is in the thousands of megawatts. I don’t know how much of that we’ll do.
PFR: You’ve been tasked with expanding SunEdison’s global wind. How are you looking to tackle that?
I think there are three steps. The first step is to tackle the projects that are right in front of us, and there’s a handful of projects around the globe SunEdison has been looking at before First Wind came along. We just need to dive in and understand the projects and help them get completed. Understanding the projects from a technical point of view, helping on the execution in terms of getting these things built and turbine selection, wind resource assessment, all of that kind of wind expertise. Then getting them built and into the operation stage, that’s the short term right in front of us.
The second thing we’re doing is we’ve got a bunch of projects that other people are showing us. Again, third parties, acquisition candidates, projects that are running today, development projects in 10 to 12 countries around the globe. How do all of those things stack up from a risk return perspective, and then what is our plan to build those out?
Then there’s the third step, I’ll call it more of a strategic view. Those first two steps are in the next three or four months, and then we’ll go into deep strategic review of where we really want to be and where we can leverage the SunEdison platform the greatest, and build a healthy and profitable international business.
PFR: What do you think the impact of the PTC expiration will be on the market? What are some of the challenges for wind development and financing in the U.S. as a consequence of the expiration?
The way I would describe it is a phenomenal short-term opportunity to take advantage of the PTC expiration. We were fortunate to qualify for 1.6 GW of turbines from GE, Siemens and Vestas at the end of 2014, and that will allow us to pursue our own organic pipeline as well as some of the acquisitions I’ve talked about to take advantage of the relatively small number of players that went out and qualified turbines. In the next two years, people are going to be phenomenally busy in the wind sector. We’ll see a big year in 2015 and even a bigger year in 2016 in terms of megawatts installed.
Then again, the question is, will the PTC be reinstated or does it go away forever? I don’t know what the answer is, but we have to prepare ourselves for the PTC not being there, or maybe it’s there for a period of time and then it expires definitely. There is an effort now to extend the PTC. President Obama and his recent legislative package had a permanent PTC in there. That would be phenomenal, but in political reality, the odds are long for getting that accomplished.
There are other market drivers on the horizon, the biggest being EPA 111d. For us to continue to focus on markets that are short of RPS standards. If you believe that 111d is going to get implemented, and there is some value for low carbon compliance, then there is a very good chance that the wind industry hums along. That’s on the demand side.
On the supply, what you’ve got to believe is that the OEMs are going to continue to improve the technology and drive the prices down by putting a lot more manufacturers in the U.S. That certainly has happened over the last three years in a major way. If you can think about one or more turns of that happening between now and 2020, then maybe there’s a scenario where the wind industry doesn’t need to be subsidized. And that’s not tomorrow, but think about it over the medium term.
PFR: Going back to your global plans, outside of North America, where are you seeing the most opportunity and why?
We’re seeing a lot of opportunities. I’ll talk about two countries—Mexico and India. Mexico is in the middle of an energy reform. It’s still in the early innings there, but we think the fundamentals are trending in the right direction, and we’re putting a fair amount of resources on development assets in Mexico. Again we’re doing that in conjunction with our new colleagues at SunEdison, who have a presence in Mexico and speak the language and have the strategic relationships. That’s a phenomenal way for us to come together.
India has got so much growth potential. Wind is big, a lot of these states have put out big grill targets, SunEdison has a phenomenal presence in India on the solar side, and we’re just trying to leverage off that phenomenal presence to take a piece of the wind sector and the wind growth that’s going to happen there. Those are two countries at least in the short term that we’re putting a lot of focus on.
PFR: Are you planning to assemble a new team at SunEdison? How is the structuring of that process going?
It’s not a new team. Fundamentally, it’s the First Wind team. SunEdison has a utility development team that is now part of my organization, so we’ve already brought those two organizations together. The legacy utility SunEdison team and the legacy First Wind team are now one team in North America. On the international side, we’re probably not as advanced as we are in the North American region simply because it’s early. We just closed this deal. Obviously, we’re just getting our hands around the opportunity set internationally, where the skills are and where the gaps are and then trying to fill it with people. There’s a tremendous amount of demand for high quality people, and we’ll fill them with a combination of SunEdison folks and people from outside the market.