Yieldcos Seen Surging to $100 Billion to Lower Clean-Power Costs

(Bloomberg) — Yieldcos, a clean-energy financing model
that didn’t exist three years ago, are on track to become a $100
billion market.

That’s almost quadruple the $27 billion in market value
now, according to Jeff McDermott, a managing partner at
Greentech Capital Advisors LLC, a New York-based investment bank
that invests in yieldcos.

Wind and solar developers continue to form the publicly
traded ventures to reduce funding costs as investors snap up the
shares, which provide one of the few opportunities to buy into
the steady revenue delivered by renewable power plants, he said.

“It really does lower the costs of renewables,” McDermott
said during a panel discussion Wednesday at Bloomberg New Energy
Finance’s annual conference in New York. “It’s got a lot of
room to run.”

There are at least a dozen yieldcos now and more are in the
works. First Solar Inc. and SunPower Corp., the biggest U.S.
solar manufacturers, said in February they plan to jointly form
one.

Under the yieldco format, an energy developer creates a
separate company that buys and operates completed power plants.
Long-term deals to sell electricity make the ventures low-risk
borrowers, while project sales give developers capital to build
more wind and solar farms.

Interest Rates

Yieldcos also deliver dividends to shareholders that are
often higher than corporate bonds. That’s what makes them
popular with investors. That advantage may wane, though, if
interest rates increase, said Josh Steiner, head of industry
verticals at Bloomberg LP, who moderated the panel. Bloomberg LP
is the parent of Bloomberg News.

Mike Garland, chief executive officer of Pattern Energy
Group Inc.
, said that risk is offset by having fixed, long-term
debt. The San Francisco-based yieldco owns almost 2 gigawatts of
wind capacity in the U.S., Canada and Chile, according to its
website.

“If interest rates rise, it doesn’t affect our
economics,” he said during the panel.

The cost of capital is one of the most significant parts of
making wind or solar power competitive, Garland said. “If you
can get that down it really helps.”

To contact the reporter on this story:
Will Wade in New York at
wwade4@bloomberg.net

To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Carlos Caminada, Randall Hackley

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