David Burton gave an interview to the Stratton Report discussing the prospects for growth in the YieldCo sector.
Stratton Report: Can you give us a brief description of a yieldco?
David Burton: Before I do that, I should note that the term, “yieldco,” isn’t a tax term; it’s not an accounting term; it’s a term that investment bankers thought up to market a new structure. Basically what it has come to mean is a publicly traded corporation that owns contracted energy producing assets that generate accelerated depreciation and possibly tax credits. The accelerated depreciation and any tax credits generally shelter the corporation’s tax liability for the first ten years or so. Therefore, most of the corporation’s net revenue is available for distribution to its shareholders, and the yieldco commits to making very large distributions to its investors—typically about 80% of their cash flow. The yieldco has fixed-price power sales contracts with utilities and other off takers for long periods of time, say up to 20 years. As a result, the yieldco can tell investors, “I have signed well-qualified buyers up with contracts to purchase my electricity. You can be pretty sure because of my contracts that I will have a steady supply of cash for the next 20 years. Because I can use tax credits and accelerated depreciation, I won’t have to use my cash to pay taxes, so I will have plenty left over to pay out to you as dividends.”