1. The Rise of the Yieldco
Tom Konrad Ph.D., CFA
History
What is a YieldCo
Importance and Purpose
Common YieldCo features
Yieldco Assets
Benefits and Drawbacks
2. About Me
Editor, Freelance writer
Hedge fund focused on green economy.
Head of research.
Global Equity IncomePortfolioGlobal Equity IncomePortfolio
Co-Portfolio Manager.
Invests in high income Fossil Free Green Stocks, including some Yieldcos
3. Disclosure
Tom Konrad and/or his clients own the
following securities discussed:
US: BEP, EVA, HASI, PEGI, PFBOF, PW,
PW.PRA,
Canada: CSE, RNW, AQN
UK: TRIG
4. Disclaimer
Past performance is not a guarantee or a reliable
indicator of future results. This presentation contains
the current opinions of the author and such opinions
are subject to change without notice. This presentation
is inteded for informational purposes only. Forecasts,
estimates, and certain information contained herein
should not be considered as investment advice or a
recommendation of any particular security, strategy or
investment product. Information contained herein has
been obtained from sources believed to be reliable, but
not guaranteed.
5. In the Beginning:Pre-Yieldco
Flow of capital for Clean Energy projects
mostly frozen
Solar typically requires 20% equity
Wind typically requires 50% equity
Developers needed access to high volume,
low cost capital from stock market to scale.
6. 2012 - Present: MLP Parity Act
Would allow solar & wind in Master Limited
Partnerships
Repeatedly introduced by Sen. Coons [D-
DE] and Rep. Poe [R-TX]
Bipartisam support:
58 Dems & 11 Republicans in House
3 Dems & 3 Republicans in Senate
Has never been brought to a vote.
7. 2012: Solar REITs?
IRS has authority to decide which assets
qualify as real propert and are REIT-safe.
Could be in response to a request for a
Private Letter Ruling (PLR) or urging by a
government official.
NREL report concludes "PV meets many of
the important criteria to be considered “real
property”
8. 2013: Solar REITs?
Hannon Armstrong Sustainable
Infrastructure (NASD:HASI) granted PLR
for its unique mix of energy efficient building
upgrades.
No Solar PLRs granted
9. 2013: Solar REITs
Power REIT (NYSE MKT: PW) begins to
invest in land under solar farms.
Difficulty finding suitable investments and
unrelated legal troubles prevent reaching
scale.
10. What Is A Yieldco?
Developer perspective: A way to raise
(cheap) equity capital for Clean Energy
projects
Investor perspective: A company that pays a
(usually) high dividend based on cash flow
from Clean Energy assets.
11. Why Yieldcos Are Important
Lower cost of funding = cheaper electricity.
Yieldco effect
12. Why Yieldcos Are Important
Green option for income investors.
Lower costs for developers and buyers of
renewable electricity.
14. Features of Yieldcos
Invests in Clean Energy assets
Pays (almost) all Cash Available For
Distribution (CAFD) to investors
Developer/sponsor
ROFO – Right Of First Offer
IDR – Incentive Distribution Rights
Public Listing
Uses depreciation as tax shield
16. What Are Yieldco Assets?
Owned
By
Yieldcos
Solar
Wind
Effi
cien
cy
Coal?
thermal
Natural gas
Transmission Hydropower
BiomassNuclear?
Storage
Cleaner/Greener
21. Incentive Distribution Rights (IDR)
Developer/Sponsor receives larger
proportion of distributions after
dividend/share reaches specified levels.
Can give developer/sponsor an incentive to
sell assets to Yieldco at better prices.
May cause its own perverse incentives,
such as increasing asset value per share
even if new investments are not attractive.
NEP, TERP, BEP, CAFD, and EVA.
22.
23. Public v. Private
Public listing
Low capital cost
Constant need for new
assets
Reduced flexibility-
may not be able to
adapt to new
situations.
Private Funds
Higher capital cost
Lower compliance cost
Fewer investors
Can adapt quickly.
24. Depreciation As Tax Shield
Pros
No need for tax-
advantaged structure
like REIT/MLP
Cons
No tax appetite for
ITC/PTC. Must use
(expensive) tax equity.
Constant need for new
assets.
25. There's A Lot We Don't Know
How long can dividend growth continue?
What happens after depreciation runs out?
Are asset markets (especially solar) getting
overheated?
Will fossil assets dilute Yieldco brand?
Will PPAs be renewed on favorable terms?