Alternative structures sought as yieldcos in N America keep losing value

The shares of all nine yieldcos listed in North America have experienced sharp declines in the past four months and many are starting to question whether this is a viable structure for long-term renewable assets ownership.

A recent report by CohnReznick LLP shows that just three of the nine yieldcos are trading above their listing price. Abengoa Yield has suffered the most and is currently trading at 48% below its June 2014 listing price. TerraForm Global and TerraForm Power are trading 40% and 39%, respectively, below their initial public offering (IPO) prices.

One of the reasons for the decline in stock prices is a broader market sell-off due to global economic concerns, such as declining commodity prices. The other reason, however, is more important.

As Rob Sternthal, president of CohnReznick Capital Markets Securities LLC, explains, the assets of yieldcos do not grow in value with time, they depreciate. So these entities constantly need to acquire new assets to grow. The bigger yieldcos get, the more assets they need to acquire to grow at the same pace. This situation is discouraging investors. To make thing worse, the stock price declines have made it more difficult to continue to buy projects since many yieldcos use their stock as currency, noted Tim Kemper, co-national director, Renewable Energy Industry, at CohnReznick.

Developers and independent power producers (IPPs) are already evaluating the creation of other structures so as to own and operate renewable energy assets long-term, said Anton Cohen, co-national director, Renewable Energy Industry, at CohnReznick.

YIELDCO OVERVIEW

Yieldcos listed in North America have secured USD 11.3 billion (EUR 10.5bn) in debt and equity in the first nine months (9-mo) of 2015, or 117% more than a year ago, shows the CohnReznick report. TerraForm Power ranks first with USD 3.5 billion raised in January-September 2015. This SunEdison yieldco is also the leader in terms of acquisitions with 2.3 GW of transactions this year.

The yieldcos purchased 6.5 GW in 9-mo 2015, as compared to 6 GW for the whole of 2014 and 3.5 GW in 2013. Solar accounted for 28% of the capacity acquired in 2015 and wind’s share jumped to 56%.

The table below shows how the geographic focus diversified thanks to the emergence of yieldcos with a global mandate.

The full CohnReznick report is available here.

(USD 1 = EUR 0.933)

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