Yieldcos Emerge as Important Renewable Energy Project Finance Vehicle

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Stoel Rives attorneys Ed Einowski and Greg Jenner discuss in a National Law Journal article how “yieldcos” are poised to become an important vehicle to raise capital for renewable energy generation. 

Einowski and Jenner explain that renewable energy projects have historically been financed through tax-equity transactions that monetize federal renewable energy tax credits. The typical arrangement is a partnership “flip” in which an investor acquires a 99 percent interest in a partnership owning a renewable facility for a set period, after which the investor’s interest “flips” to a lower percentage. 

Recently, however, renewable developers have begun experimenting with alternative forms of raising capital through the use of yieldcos. A publicly traded corporation, yieldcos present an exit opportunity for developers to efficiently and cheaply monetize all or a significant portion of the developer’s remaining interest in the project. By using IPO proceeds to acquire interest in operating projects, the yieldco enables the development affiliate to replenish capital, repay indebtedness and make a return on its initial investments in the projects acquired by the yieldco.

The authors caution that the most significant downside of a yieldco is its cost, since an initial public offerings is required. They also note that there are challenges to the yieldco structure, among them the necessity of keeping portfolios large and diverse to minimize the risk to investors and continuing to build them to maintain value for shareholders.

In conclusion, Einowski and Jenner note that while yieldcos will not be for everyone, they offer a means by which developers can monetize their investments in a relatively inexpensive way. “Yieldcos represent another arrow in the financing quiver.”

Read “An Instrument Emerges to Finance Projects” published by The National Law Journal, April 28, 2014. (Subscription required.)

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