Large renewable energy project developers often use a type of financing vehicle colloquially known as a “YieldCo” to finance portfolios of assets that are expected to have stable cash flows over relatively long periods, such as solar or wind farms. In theory, investors should be willing to accept lower returns on investments in these “safe” assets than they would on investments in the developers themselves, thus reducing the cost of capital for such assets and increasing their value.
We thought it would be useful to see how this has worked out in practice. In this post, we show how we determine the cost of capital for a yieldco using 8point3 Energy Partners, a yieldco formed by SunPower and First Solar to own and operate solar systems, as an example. Then we show the results of using the same methodology across a number of public yieldcos with a variety of asset types. On average, we find a cost of yieldco equity is 7.01% levered and 5.46% unlevered.
This relatively low cost of capital has implications for the value of projects held or purchased by yieldcos. It should allow developers that have yieldcos to sell their projects at attractive prices, and allow their yieldcos to pay more than many other project investors for projects they purchase from independent developers.