Why the Future of the Yieldco Is at Risk

In the past two years, the proliferation of YieldCos, and their ability to open new sources of capital for renewable energy projects, has captured the attention of the energy industry. While a YieldCo’s potential to catalyze renewable energy development is immense, the focus on feeding YieldCos has come at the expense of adequate transparency into the underlying assets being delivered into the financing mechanism. However, as U.S. bond yields rise, the long-term viability of YieldCos will necessitate operational improvements amongst their parent companies in order to compensate for tightening market conditions. These improvements must drive efficient compliance and transparency to capital market requirements while also allowing YieldCos to effectively diversify their holdings.

YieldCos’ ability to attract investment is predicated on growth and, consequently, the ability to acquire new assets that can deliver steady cashflows. In the U.S., the effects on solar development are tangible. My company’s distributed energy insight report, which compiles data from 3000+ projects seeking financing, highlights that YieldCos are not only providing low-cost capital to solar projects but are also contributing to widespread competition for project acquisitions. The result has been downward pressure on the economic returns necessary for projects to successfully attract financing. Meaning more projects can find financing and are being sold for higher prices. This has undoubtedly helped grow project development.

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