Renewable YieldCos

Wind Farm

The income vehicles generally invest in mature and tested renewable farms, predominantly onshore wind farm and solar farms (although sometimes also invest in more conventional fossil fuel energy generating assets and pipelines. The underlying renewable assets are generally acquired only once fully constructed, and are supported by long-term "offtake" contracts with local/national utilities. These contracts generally last for 15-25 years, often equivalent to the expected lifetime of the project, insuring there is a buyer for the electricity generated by the renewable projects.

Solar Farm

The renewable projects are often supported by state and/or federal incentives, which boosts the cash flow generated by each KWh of electricity produced. Electricity production can be seasonal for both solar and wind farms, but on a yearly basis are generally only 5-10% off from the 10 year average. The stability of the electricity generation profile, together with the long-term offtake contracts, enables the YieldCos to finance a large portion of the acquisition costs with debt, with an amortization profile that can be as long term as the projects' generation profile.

Investors generally focus on the cash generated by the portion rather than earnings, which include a large depreciation charge that is not aligned with the change in value of the underlying projects (in particuar in the first few years). A large proportion (50%-100%)of the net cash generated by the company (after accounting for maintenance costs and central ovrheads) is paid to investors through dividends, with the remaining cash re-invested in other renewable plants.

Each Renewable YieldCos generally aims to grow their portfolio through acquiring additional plants. This is achieved through re-investing excess cash generated, but primarily through the issuance of new shares and raising new debt. The increasing portfolio offers diversification of the portfolio across offtakers (i.e. lower exposure to a a single utility), technology (wind vs. solar), geography (across US states, but also internationally), and economies of scale through the ability to negotiate better operating and maintenance contracts, and spreading the central costs across a larger portfolio. Therefore, the growth of the portfolio ultimately benefits the shareholders, but only if the additional projects are purchased at attractive prices and overall debt remains manageable.