SNL Financial Reports on Akin Gump Energy Briefing and Ed Zaelke’s Comments on Yieldcos
SNL Financial reported on Akin Gump’s June 4 “The Global Energy Industry: 2014 Mid-Year Energy Briefing,” quoting Ed Zaelke, co-head of the firm’s global project finance practice, on the outlook for the yieldco market.
Zaelke notes the current wave of yieldcos, publicly traded companies formed to own operating assets that produce a predictable cash flow, have all been of high quality. Those that were recently funded have come from companies such as NRG Energy Inc., TransAlta Corp. and Pattern Energy Group LP.
Zaelke says one benefit of the yieldco structure is that it allows renewable projects to be purchased more readily. He says one of the potential drawbacks, however, is that yieldcos need a steady pipeline of strong projects. If renewable energy tax incentives begin to ease, he says, “it may cause the availability of good projects to become thin and that would make it more difficult for the yieldco to continue to grow and survive over a long period of time.” Fluctuation in interest rates, he adds, would also be a source of concern.
Despite the potential drawbacks, Zaelke expects a “continued rush” to the yieldco market. The difference, he says, “between private equity returns and yieldco returns are so great that it’s very difficult to ignore a yieldco structure if you have a portfolio of renewable energy projects.”