Yieldcos – The New “Promised Land” of the Renewable Energy Space?

by Akin Gump Strauss Hauer & Feld LLP
Contact

For the most part, with the exception of a limited number of projects referred to as “community wind,”  America’s roughly 70,000 MW of installed utility scale wind and solar projects are owned directly or through subsidiaries of large American or European utility companies, large independent power producers or companies funded by large private equity firms.  Up until just recently, small individual investors have not been included in the ownership mix of renewable energy projects. The lack of individual investors has a number of drawbacks, including limiting the dissemination of positive information about the benefits of wind and solar and restricting what could be much broader political support.  Possibly the most significant impact, however, is on the cost of capital for wind and solar projects where expected unlevered returns by the current owners range from 6-16 percent per annum.  By comparison, both the oil and gas industry, through master limited partnerships, and the real estate industry, through real estate investment trusts, are able to access the small, private investor in order to significantly reduce the capital costs for those industries.  With savings interest rates hovering just above 1 percent and 10-year treasury bills below 2.5 percent, the small, private investor is hungry for any low-risk product that can offer even a modest yield.

Unfortunately for the renewable energy industry, the perception of the investing public about the industry, with its heavy dependence on tax credits and sophisticated tax structuring, new and untested technology and equipment, resource uncertainty, transmission issues and other factors, was that it was not “low risk.”  In fact, however, for many wind and solar projects, there is a portion of the revenue stream from those projects that is quite “low risk.” Most utility scale wind and solar projects have a contract for the sale of their power at a fixed or escalating price to a large local utility for a term of 15 to 20 years.  With the development over the past 10 to 12 years of very reliable wind and solar energy equipment (thank you, GE, Siemens, Sunpower and others), and advances in wind and solar resource prediction, the income streams from many wind and solar projects are, actually, quite predictable and very “low risk.” The challenge is how to get that low-risk portion of the wind and solar projects into the hands of the investing public. Enter the Yieldco.

For definitional purposes, a Yieldco is a publically traded company that is typically majority- owned or controlled by a large renewable energy developer.  The company itself will hold assets or will purchase assets typically viewed as “low risk” in the power industry in that they have a (1) a long-term contract for off-take from a large utility, (2) a proven or well-known resource, (3) proven technology, often from a major manufacturer, and (4) in some cases, a significant operating history. The projects selected for inclusion in the Yieldco must produce a steady cash flow that will allow for a constant dividend to the shareholders.  It is critically important to note that this steady cash flow is independent of the tax benefits of the renewable project, which must still be sold to third parties.  In almost all cases, assets are added to or included in Yieldcos only after the tax benefits have been sold to third parties.  Thus, the amount available to Yieldco investors is limited to the cash flow from the projects only after any payments due the tax equity investors have first been made.

Other structures that are often mentioned in the Yieldco family include renewable energy REITs, which receive revenues from the real estate underlying wind and solar projects and securitizations of revenue streams from commercial and residential rooftop solar.  It is noteworthy that, so far, the six or so Yieldcos that have come to market have differences with each other and with other companies that have been classified as Yieldcos.  The structures tend to be somewhat complicated, and no two are alike.

Our next post will examine recent Yieldcos, along with a discussion of the yield they generated.

 

Written by:

Akin Gump Strauss Hauer & Feld LLP
Contact
more
less

Akin Gump Strauss Hauer & Feld LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!