Renewable Energy Financing Hits a Snag

Only a few months ago, it seemed that the renewable energy sector could do little wrong:  Stock prices were soaring and money was pouring in as investors flocked to get in on the action.

That is no longer the case.  Low oil and gas prices have roiled the energy markets, and the specter of rising interest rates has rattled investors’ confidence in the industry’s returns.  Although energy and financial experts say that the basics of the business remain sound, the lofty stock prices have tumbled, leading renewable energy companies to scramble for new approaches to their businesses.

Nowhere has the retrenchment been more acute than in a newfangled financing mechanism called a yieldco.  Yieldcos, public companies conceived by renewable energy companies as a way to raise cheaper capital for project development, have attracted billions in new investments.

The yieldcos buy and operate power plants, mainly those that their parent companies develop. The yieldcos then collect the contracted electricity fees and pay the bulk of them out as dividends.  With investors hungry for stable returns, energy yieldcos were greeted with enthusiasm through initial public offerings of their stocks over the last year and a half.

Last week, though, one of the most aggressive companies in the sector called a timeout.

SunEdison, which has bought several companies in recent months in a bid to become the world’s largest renewable energy developer, told investors it would not sell any more projects to its yieldcos, TerraForm Power and TerraForm Global, until conditions change.  The company said it would trim expenses and streamline operations, including reducing project development by 20 percent, withdrawing from Britain and cutting roughly 15 percent of its work force.
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Despite all the turmoil, executives say interest in clean energy remains robust.  “There may not be that much enthusiasm for yieldcos, but the pendulum has swung to the opposite direction,” with private lenders and corporations making investments, said Lyndon Rive, chief executive of SolarCity.  That company has not yet created a yieldco but Mr. Rive said it was “keeping an open mind” to the approach, saying, “Financing is still very strong.”

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