TerraForm Power (TERP) By: David Schmitt, Paul Harrison, Ike Nwafor, Ian Naccarella, Xianming Li, and Luke Chen

TerraForm Power (Ticker: TERP) ● Current Share Price: $39.61 ● Current Dividend: 1.08/share (up to 1.30/share for the rest of 2015) ● Yieldco affiliated with SunEdison (SunEdison owns about 48%) ● IPOed June 2014

Investment Thesis TerraForm is a lower-risk way to capture the upside potential of the renewable energy sector

Important Solar Terms -What is a yieldco? -Revenue? - Power Purchase Agreements (PPAs) - Investor Tax Credits (ITCs)

Yieldcos -Similar to MLP or REIT -Way for parent company to finance large-scale projects (i.e. solar installations) -Lower cost of capital

Power Purchase Agreements -contract in which buyer agrees to purchase power from project owner (i.e. solar company) -annual escalation (2.9%)

Investor Tax Credits (ITCs) -Governments offered incentives to solar buyers -30% of face value and accelerated depreciation (6 year schedule)

Industry Overview ● Concerns that lower prices for energy from traditional sources (oil, natural gas) will destroy demand and profitability of renewable energy are unfounded. ● Historically, fossil fuel prices have had little correlation to electricity prices, where the majority of renewable energy actually towards producing. ● Therefore, even though oil prices have fallen to around $50/barrel, pricing for electricity derived from sources such as solar is unlikely to significantly lower.

Parent Company Overview ●SunEdison (ticker: SUNE) ●Market cap: roughly $8B ●largest market cap of primarily solar players (but as we’ll see later, venturing into other forms of alternative energy) ●Recently announced 2nd yieldco focusing on emerging markets

Trends Correlation with parent company Growth

Comps Model SunEdisonFirst SolarSunPowerNextEra Market Cap$8B$5.5B$4.2B$45B Cash on Hand$789M$1.4B$601.5M$490M Solar Projects in Pipeline 7.6 GW3 GW7.5 GWNot listed Market Cap of Yieldco $4.87B$50M $828M First Solar & SunPower Yieldco 8point3 Energy Partners

Management Team Key Management positions contain substantial carry over from SunEdison -Carlos Domenech | President & Chief Executive Officer - continuation from SunEdison, previously spent time at Universal Pictures International Entertainment and General Electric -Pancho Perez Gundin | Chief Operating Officer -continuation from SunEdison Europe, previously spent time at Universal Pictures International Entertainment -Alejandro Hernandez | Chief Financial Officer -appointed in 2014, previously Managing Director at Goldman Sachs responsible for coverage of North American Energy companies - General Counsel, Corporate Development, and Mergers & Acquisitions are continuations from SunEdison as well

Recent Company History -Acquired First Wind Holdings, LLC (Jan 2015) for $2.4B -500 MW of operating wind power plants, 21 MW of solar power plants -Expected to add $73M of cash available for distribution (CAFD) -Portfolio with average counterparty credit rating of A- (A(low)) -Madison Dearborn Partners= major investor in First Wind -Impact -Potential for growth in global renewable energy markets -Diversifies portfolio to include contracted wind assets, more dividends

Recent Company History (cont) June Purchased half of Silver Ridge Partners’ 336 Megawatt Photovoltaic portfolio for roughly $200M Impact: Silver Ridge Partners half-owned by a PE firm Riverstone Holdings

Balance Sheet Takeaways -$2 billion in PP&E (all they do is acquire stuff)~ 70% of assets -Take production costs up front (very low deferred costs) -1:1 debt:equity ratio

Cash Flow Takeaways -Around $60 million available for distribution in dividends last year (roughly 85% of cash available for distribution is distributed per TERP’s policy) - Retain 15%

Catalysts -Undervalued renewables, because people associate oil prices with renewable energy stocks -SunEdison is well positioned to purchase many other companies (lots of cash on hand and cheap renewable energy companies) so ready made stream of projects for TerraForm -Buyer’s market in renewables (end of ITC)

Risks -Parties in PPA may default on payments (doubtful because all of major creditors are investment-grade-- most are utilities or gov’ts) -Dividend policy inhibits ability to grow on its own (85% of CAFD goes to dividends) -Market timing -Government policy changes

Dividend Discount Valuation

Investment Thesis TerraForm is a lower-risk way to capture the upside potential of the renewable energy sector

Recap -TerraForm is the best positioned yieldco at a solid time for renewable energy investment - parental support - sellers in the market - depreciated renewables prices

Exit Strategy ● Uncertain energy regulation new government ● Market correction? Sale price: ~$45 Time-scale: 12 months