YieldCos: New Financing Tool to Spread the Solar Boom

Avoiding or offloading corporate income taxes is business as usual for major players in the dirty fuel and real estate sectors. Now it’s renewable energy’s turn to reap the rewards of fancy math.

Enter the rise of the clumsily named YieldCo, which like real estate investment trusts (REITs) or the extraction industry’s master limited partnerships (MLPs) are publicly traded financial vehicles created to decrease risk and volatility — and increase capital and dividends. But instead of securitizing pipelines and properties, YieldCos sell millions of shares backed by global megawatts of solar power generation.

Just ask SunEdison, which was upgraded to Buy from Deutsche Bank this week, thanks to its solar YieldCo. “We expect the emergence of 5-6 publicly traded YieldCos over the next 12-18 months to act as a robust growth enabler,” Deutsche explained.

SunEdison’s $300 million IPO for its YieldCo comes on the heels of Spain’s Abengoa, whose YieldCo is ramping up a $600 million IPO, as well as NRG Inc’s NRG Yield and SolarCity’s securitization, all of which have mainstreamed the mechanism for Wall Street and Main Street investors.