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56 www.resourceworld.com o c t o b e r / n o v e m b e r 2 0 1 5 increased confidence in solar as an asset class The recent spread of yieldcos as a financial vehicle in the solar industry could radically increase growth by Robert Simpson F or years, news in the solar space has been the cost reductions coming out of research and development and techni- cal innovation. But in what appears to be a sign of increased confidence in solar as an asset class, is the development of new meth- ods of project financing which are cutting costs. This past year has seen several large solar developers form what are known as "yieldco" vehicles to raise cheap financing. Yieldcos are essentially publicly-traded, holding companies which bundle assets that produce a steady and predictable flow of income, such as energy plants, which have long-term distribution agreements. The cash flow is distributed among inves- tors as dividends. Yieldcos do not pay corporate taxes, and instead, dividends are taxed at the investor level. As such, yieldcos are attracting low-cost capital by focusing on the reliable cash flows of elec- tricity sales. This year yeildcos spread rapidly in the solar sector, with renewable energy giants Abengoa [ABGB-NASDAQ], nextEra Energy [NEE-NYSE], SunEdison [SUNE- NYSE] all setting up yeildcos. Recently, two other major US manufacturers, First Solar [FSLR-NASDAQ] and SunPower [SPWR-NASDAQ], formed a joint yieldco – 8point3 Energy Partners LP – the assets of which are 100% photovoltaic (PV) and which went public on June 19, 2015. The partnership has since manufactured PV systems, transferred them to a newly cre- ated yieldco, and received US $420 million cash which they can use to produce new PV systems. The yieldco's concept is not new – it is borrowed from the oil, gas, and coal indus- tries, which have utilized a similar concept with master limited partnerships (MLPs) for years. The first renewable energy yieldco, Brookfield Renewable Energy Partners, [BEP.UN-TSX] was created in 1999. With 6 GW of installed capacity, Brookfield holds mostly hydroelectric plants. In 2013, several more yieldcos went public, including TransAlta Renewables [RNW- TSX], Hannon Armstrong [HASI-NYSE], Pattern Energy Group [PEGI-NASDAQ] and nRG Yield [NYLD-NYSE]. These hold mostly wind assets, although NRG Yield's portfolio includes eight utility-scale PV plants and two portfolios of distributed solar assets. Sean Wheeler, partner of the law firm Latham and Wheeler, wrote that yieldco serve as "vehicles for investors seek- ing stable and growing dividend income from a diversified portfolio of lower-risk high-quality assets." Yieldcos remove the risk that over the years has been associ- ated with renewable energy investments. Instead of relying on early stage, high-risk investments, yieldcos take regular cash flows from already established projects. Wheeler writes that, in terms of growth, Shares in Guelph, Ontario-based solar panel maker Canadian Solar Inc. jumped in March 2015 after the company said it is forging ahead with plans to create a spinoff yieldco that will hold some of its completed power projects. Source: Canadian Solar Inc. alTErNaTivE e n e r G y