What are Yield Cos and What Do They Mean for Clean Energy?

Energy_Finance_Yield_Cos

What are Yield Cos and What Do They Mean for Clean Energy?

Ryan Pollin for Zondits, December 5, 2014

The “yield co” is a relatively new financial packaging tool that has interesting implications for renewables and energy efficiency. These publicly traded entities are formed around operating assets that they own in order to generate a predictable cash flow.

Within the last 2 years about a dozen yield cos have launched or been announced, and they all revolve around the idea of a reliable dividend that comes from an asset. NextEra, NRG, TransAlta, TerraForm Power, and others all have used this structure to create a freestanding investment vehicle that represents 100% renewable assets. That means no administrative cost, no R&D uncertainties, and no production fluctuations. The aim is to remove as much of the fluff as possible and offer a pure form of what investors really want. Yield cos are a way for a company to cleave off segments of their business to offer a 100% clean energy investment – which gets the recognition of a socially responsible investment (an investment that aims to offer social benefit in addition to financial returns). It’s worth noting here that socially responsible investments are about 11% of all investments as of 2012, and growing. As an example, where an ethical investor might once have glossed over TransAlta as a run-of-the-mill wholesale energy company, they may now see TransAlta Renewables (TSX:RNW[i]), which lets them do social good with their investments. If the fossil fuel divestment movement keeps up its slow and steady momentum, we might see pressure for many more Yield Cos in the near future!

And yes ‒ so far these renewable energy-flavored yield cos are performing very well.