Ed Zaelke Quoted on Yieldco Vehicles by The Deal
Akin Gump global project finance practice co-head Ed Zaelke discussed the uncertainties facing investors in the new yieldco market with The Deal Pipeline for its article “Utility yieldcos get thumbs-up from investors.”
The article notes that one of the benefits of a yieldco—an investment vehicle focusing on the power and utilities sector—is that it is not required to pay federal taxes, and, therefore, increases the “cash available for distributions to unitholders.” Zaelke noted that tax incentives for renewables in the United States are critical to the success of the yieldco, adding that if it cannot be formed as a real estate investment trust, or REIT, the yieldco could be subject to double taxation.
Zaelke characterized the market for yield as “hungry,” which is leading to oversubscription in these investments, but he noted that the most successful yieldcos will stay disciplined and only put in the best projects: ones with long-term contracts in place and built by the best developers with the highest quality equipment. However, even the “gold standard” of projects may become a risk in the future. He added that "undoubtedly" some yieldcos will struggle to find consistent projects, which may lead to acquisition by a stronger investor.