Financing has always been a tough nut to crack for the renewable energy space. The sector has long been plagued with boom and bust cycles. Much of that has been driven by subsidies and the whims of politicians.
So when it seemed that the sector had found a reliable source of new and constant funding for major projects, investors went wild. And dividend investors went even more gaga. The so-called yieldcos promised high dividends with a renewable energy twist. However, like much of the renewable sector’s history, this too was plagued by a boom followed by a bust.
The question for dividend investors is whether or not the issues facing various yieldcos are long term or just the latest down-cycle ready to turn around.
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More Boom & Bust
For many of the major renewable power firms, low prices forced them to rethink their overall business models. Many pure-play solar panel or wind turbine manufacturers couldn’t cut it in the world of cut-throat prices. On the flipside, renewable energy facilities provided stable cash-flow streams.
Just like any other power plant, generation from a solar or wind farm is tied to long-term contracts. Thanks to rising regulation and customer demand, many utilities are lacking renewable energy in their fleets. Using a merchant power generator who owns a wind farm is an easy and increasingly attractive solution.
Many companies – such as First Solar (FSLR ) and SunEdison (SUNE) – are turning toward building out utility-scale solar farms to help drive future revenues. And to fund those, they took a page right of the pipeline industry’s playbook. They created a new type of security dubbed a yieldco to take advantage and become a buyer of these farms.