FINANCE: Is 2015 the Year of the Yieldco? Global Investment in Key Advanced Energy Sectors Up 16% in 2014

Posted by Dan Scripps on Feb 24, 2015 11:53:00 AM


A pair of deals in the first weeks of the new year suggest that 2015 may be “The Year of the Yieldco.” Earlier this month, Pattern Energy, a leading independent power company (and AEE Member), closed on a public offering that raised $351 million, close on the heels of a deal last month with Tokyo-based Green Power Investment Corp. for rights to a 1 GW pipeline of development projects in Japan. Sol-Wind Renewable Power, a New York-based company that owns a portfolio of solar generation assets, also recently announced an IPO targeted to raise $174 million. These developments show that what Bloomberg New Energy Finance has called the “emerging phenomenon” of yieldcos is not just emerging - it’s here.

While not new, yieldcos are a growing opportunity for renewable energy companies to access the capital markets with limited partnerships made up of operating assets that have a strong cash flow. Sometimes called “synthetic Master Limited Partnerships (MLPs),” yieldcos are able to avoid double taxation, similar to a key feature of the MLP structure - important given the prohibition on renewable energy companies structuring themselves as an MLP. NREL has some excellent background on yieldcos, as does AEE member Mintz Levin.

With Sol-Wind Renewable Power’s IPO, there are now seven advanced energy companies with publicly traded yieldcos: Abengoa Yield Plc., NextEra Energy Partners, LP, NRG Yield, Pattern Energy Group, Sol-Wind Renewable Power, TerraForm Partners, (an “indirect subsidiary” of AEE Member SunEdison), and TransAlta Renewables, Inc. Two other companies - First Solar and SunPower (both AEE Members) - have also investigated yieldcos, but to date have not moved forward.

Look for additional activity in the yieldco market in 2015, as well as in other areas where companies are using crowdfunding platforms, securitization vehicles, and other financial innovations to finance development activities.

In other energy financing news, global investment in key advanced energy sectors increased 16% in 2014 to $310 billion according to annual data released last month by Bloomberg New Energy Finance. The United States saw an 8% increase, to $51.8 billion, the highest level since 2012. These figures are all the more impressive given the fact that asset finance for utility-scale wind in the U.S. fell by more than 50% to $5.9 billion as a result of continuing uncertainty over the federal Production Tax Credit, which stands in contrast to the 11% global growth in wind-related investment. The decline in U.S. wind investment was offset by a 39% increase in U.S. solar investment, which rose to $8.9 billion, and a 52% global increase in new equity investment, including the $2.3 billion raised by Tesla and the growth in yieldcos as an equity investment vehicle.

The largest investment segments globally include:

  • $170.7 billion in asset financing for large renewable energy projects, up 10% over 2013

  • $73.5 billion for small-scale generation systems of less than 1MW, primarily rooftop solar, up 34% over 2013

  • $29 billion in corporate and government-supported research and development, up 2% over 2013

  • $18.7 billion in equity investments from public markets, a 52% increase over 2013

  • $16.8 billion in asset financing for smart energy technologies such as smart meters, an 8% increase over 2013

  • $4.8 billion in venture capital and private equity investment, up 16% over 2013 but still well below the $12.3 billion that venture capital and private equity provided in 2008

In terms of the sectors supported by these investments, there were clear winners and losers, including:

  • Solar - $149.6 billion, up 25% over 2013. Solar received nearly half of all investment dollars, its largest share ever

  • Wind - $99.5 billion, up 11% over 2013 despite a steep drop in U.S. wind investment

  • Energy smart technologies, including smart grid, storage, efficiency and electrified transportation - $37.1 billion, up 10% over 2013

  • Geothermal - $2.7 billion, a 23% increase over 2013

  • Biomass and waste-to-energy - $8.4 billion, down 10% from 2013

  • Biofuels - $5.1 billion, a decrease of 7%

  • Small-scale hydro - $4.5 billion, a drop of 17%

Bloomberg New Energy Finance also released data showing the value of so-called green bonds issued in 2014 was more than two-and-a-half times as high as in 2013, jumping from $15 billion to $38 billion. This increase was fueled by a 500% increase in corporate green bond issuance, and a doubling of value in green bonds issued by the World Bank. Bloomberg New Energy Finance defines green bonds as "fixed-interest securities linked to clean energy and energy efficiency, and also other sustainability goals." The value of green bonds issued in 2014 was not counted in the figures for global clean energy investment.

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Topics: Energy Finance