QuickTake Q&A: Yieldcos, Fuel for Energy Projects, Draw Scrutiny

Clean-power developers need a constant flow of money to build wind and solar farms and meet surging demand for renewables. Their traditional business model relies on borrowing capital for new power plants, selling them when they’re done or almost done, then using the proceeds to help fund the next one. Investors poured $329 billion into renewables worldwide last year, according to Bloomberg New Energy Finance. Growing clean-power investment got Wall Street’s attention, and investment banks saw an opportunity to create a cheaper and more efficient vehicle to finance that growth. The result was the yieldco.

An energy developer creates a public holding company -- the yieldco -- to own and operate cash-generating power plants. With steady revenue, the yieldco pays out much of its available cash as quarterly dividends to shareholders. While publicly traded, yieldcos typically remain in the control of the developer and provide a ready buyer for its wind and solar farms. That makes it faster, and cheaper, for the developer to recycle capital as it finishes one project, sells it and moves on to the next.