Renewable Financing A closer look at YieldCos

摘要

In the search for cheaper capital, energy companies are increasingly looking to form yield-oriented, publicly listed entities, known as YieldCos. YieldCos share similarities with master limited partnerships (MLPs) and real estate investment trusts (REITs) - neither of which are broadly available for use with renewable energy assets. MLPs are largely restricted under the Internal Revenue Code to qualifying income derived from depleting natural resources. REITs are restricted because of IRS precedent that portions of renewable energy assets, such as solar panels and wind turbines, don't qualify as real property assets. Although the impetus has been on cheaper capital for renewables, YieldCos are not limited to alternatives, and may also include conventional energy assets. In either case, the YieldCo is essentially a holding company for a portfolio of energy-related assets, which may consist of title-to-energy projects owned outright, and/or contractual assets and revenue streams relating to such projects. Shareholders are paid dividends derived from the income from the YieldCo assets, and the shares are freely tradable on public markets. Often a parent company that develops renewable energy projects will retain a majority ownership in the company after it spins it off. There might be additional layers of ownership between the YieldCo and the underlying assets, and ownership of the intermediary entities may be split between the YieldCo and the parent company to allow the parent to retain control. A YieldCo is also dependent on the parent company, at least during its early years of operation, for a steam of projects and other assets. One of the key differences in structure between a YieldCo and an MLP or a REIT is that the former is subject to taxation at the corporate level. In MLPs and REITs, taxes are only imposed on the dividends received by the shareholders. However, YieldCos are generally structured to mitigate (for some period, at least) the entity level tax burden and the shareholder tax burden by means of depreciation deductions available with respect to the portfolio assets.