Renewable Funding Goes Public
The Great Recession brought about large financial losses, caused the tightening of credit markets, and led to a general prevalence of tax write-offs as a result of the tanking market. Diminished access to private loans, along with the increase in popularity of MLP and REIT structures, led many in the renewable energy industry to wonder if they could take advantage of these newer public financing structures. Practically unheard of just a few years ago, YieldCos have taken off in popularity as a number of large organizations have used these financing vehicles to raise capital. YieldCos are a securitized bundle of contracted, revenue-generating assets which are then listed and traded on public exchanges.
NRG Energy was one of the first utilities to employ this model, launching NRG Yield (NYLD) in July of 2013, which was impressively 10x oversubscribed. In little over a year since its debut, NYLD has managed an impressive price appreciation of almost 100%. NRG Yield has been actively working to expand its asset holdings through deals such as the purchase of the biggest wind farm in the US, the 947MW Alta Wind Farm, for $870 million in July. Given the flurry of recent activity involving this financing instrument, it’s clear that other corporations have taken notice of NRG’s success.
SunEdison, the global solar manufacturer, installer and project developer launched its own YieldCo under the name TerraForm Power (TERP) this past July. SunEdison’s offering comes one month after Spanish wind energy giant Abengoa debuted their Abengoa Yield (AYLD) offering. While only on the market for a couple of months, ABY’s market cap ( $3.2 billion) is significantly larger than any of the other YieldCos discussed in this post. Whereas Terraform Power consists entirely of renewable generation, Abengoa Yield’s asset mix is comprised of wind farms, traditional power generation and transmission assets; a mix more closely in line with that of NYLD.
Even more established financing structures, such as REITs, have been getting the cleantech makeover. Hannon Armstrong Sustainable Infrastructure is a real estate investment trust which focuses on investing in renewable energy and other sustainability projects. Hannon is one of the current forerunners in using publicly raised funds to opportunistically invest in energy efficiency projects. Hannon is also using their funds for the purchase of other companies; most notably HASI purchased American Wind Capital in May for $107 million. This purchase included 7,500 acres of land which will host renewable energy projects from Southern Co and First Solar. Not content just to lease land to renewable developers, HASI has recently entered into a $42 million project finance agreement with SunPower and a $100 million agreement with Sol Systems.
The most interesting part of the nascent YieldCo trend is the wide variety of companies taking advantage of this new type of financing. Large industrial companies, utilities and renewable developers have all shown willingness to think outside of the box when it comes to capital raises. Given NYLD’s impressive performance, and the recent debut of new entrants, it’s clear that while the Cleantech investment theme has been besmirched by certain notable failures, the general public and institutional investors seem quite willing to invest in and support these YieldCos. Combined with increasing activity by family offices and the growing influence of renewable crowd-funding initiatives such as Mosaic, it is clear that after weathering the doldrums of the Great Recession, enthusiasm and capital availability remains high for economically attractive renewable projects and companies.