Sound Bites from REFF Wall Street

by Akin Gump Strauss Hauer & Feld LLP

The Renewable Energy Finance Forum Wall Street was held on June 25 and 26.  Below are selected sound bites about YieldCos, tax equity and the capital markets opportunities for renewables.  This post was prepared without the benefit of a recording or transcript. If there are any misquotes please contact the author for a correction.


“Developers are waiting for YieldCos to show up and have a cost of capital equivalent to their dividend yield.  That’s a perception issue on the developer side.”

- David Giordano, Managing Director, BlackRock Alternatives – Infrastructure Investment Group-Renewable Power

“YieldCo is a total return vehicle with yield and growth.  A large portion of the total return is growth.”

- Jerry Hanrahan, Managing Director, John Hancock – Power & Infrastructure Team

“YieldCo is a new term but not a new structure.”

- John Eber, Managing Director – Energy Investments, J.P. Morgan

“We’re going to see more YieldCos participating in partnership flip transactions [in the role of developer].”

- Katherine Breaks, Tax Managing Director, KPMG

“I’m going to leave it to somebody else to solve the problem of YieldCos with tax equity [in the same project].”

- Lyndon Rive, Chief Executive Officer, SolarCity

“YieldCos aren’t going to have enough taxable income for quite some time to use tax credits efficiently.”

- Darren  Van’t Hof, Business Development, U.S. Bank

“If a YieldCo has 12-years of tax deferral, it would need to come with some fancy financial engineering to outbid a current taxpayer.”

- Ray Wood, Director-Head of US Power & Renewables, Bank of America Merrill Lynch

“Very few YieldCos will [have enough taxable income to efficiently] self-shelter [using tax credits and depreciation from their projects].  You have to have a lot of taxable income to do that efficiently.”

- John Eber

“Since we are a passive investor, if we are going to partner with YieldCo it needs to have employees or be appropriately married to a sponsor that has employees.”

- John Eber

Tax Equity Market

“Since 2009 tax equity has been a constraint.  The solar industry has been growing 50 percent year-over-year, so unless tax equity grows at that rate there will be a mismatch of supply and demand.  So we’ve been focused on bringing in more tax equity investors.”

- Lyndon Rive

 “Try to find a risk adjusted return that beats tax equity.  Tax equity is a good business.”

- Lyndon Rive

“All we see is continued growth and opportunity for tax equity.”

- John Eber

“A corporate investor usually needs a strategic reason to go into tax equity because returns are lower than their core business.”

- John Eber

“Financial institutions are a natural home for tax equity.”

- John Eber

“The first time I talked to Google about tax equity, I said they needed to project tax appetite for the 10-year production tax credit period.  They said, ‘We haven’t been in business for 10 years.’”

- John Eber

“Nine out of 10 times, [GAAP] accounting is the killer for a new corporate investor.”

- Lyndon Rive

“Hypothetical liquidation at book value (HLBV) [GAAP] accounting is just a killer [for tax equity partnership investments].  The Financial Accounting Standards Board (FASB) gave favorable treatment to low income housing tax credits; that market is off to the races with the above the line benefits.”

- Katherine Breaks

“The GAAP accounting for earnings is much better in an inverted lease [than a partnership flip].”

- Lyndon Rive

“It is a 12 to 18 month education process for a corporate investor.  [A new corporate investor needs to grasp] that a tax equity investment has no opportunity cost: you’re going to be paying your taxes. Would you rather earn a return on [that cash by investing in tax equity]?”

- Lyndon Rive

“We didn’t design the pre-tax/after-tax partnership structure (PAPS), [in which the developer is distributed all of the available cash until it recovers its investment and then the tax equity investor is distributed all of the cash until it achieves its after-tax internal rate of return;] the developers did. We can easily change the cash distribution percentages.”

- John Eber

“In 2013, almost 50 percent of the volume in tax equity was solar.”

- John Eber

Renewable Energy Capital Markets

“Renewables are no longer a niche specialty play.  It is just a category under the broad heading of infrastructure.”

- David Giordano

“To get to 40% [of electricity coming from renewables] by 2040, we’d have to do 400 GW a year [of new renewable energy capacity] starting today.  The industry needs every source of capital available”

- Lyndon Rive

“Another source of funding is private funding.  I think that has a lot of potential.  In the spring, we will be coming out with our first private funding offering.”

- Lyndon Rive

“Our institution lends all the time to widget makers who haven’t pre-sold their output.  So why do we saddle energy projects that don’t have a power purchase agreement with the label ‘merchant’?  There must be some level of debt that could be lent to a merchant project.”

- Andrew Redinger, Managing Director, Group Head Utilities, Power & Renewable Energy, KeyBanc Capital Markets



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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