Yieldcos, publicly traded holding companies that own and operate power plants, dominated the market through the first half of this year. Now they’ve been effectively sidelined after their shares slumped in recent months.
“There’s a bit of a moratorium in the buying of assets,” Philip Shen, senior research analyst at Roth Capital Partners LLC, said on a panel on Dec. 3 at the Renewable Energy Yieldco Conference in New York.
“Yieldcos are not sitting on a lot of free cash,” said Swami Venkataraman, a vice president at Moody’s Investors Service.
With fewer yieldco deals, utilities, infrastructure funds and sovereign wealth funds are emerging as the main buyers of wind and solar projects, and they’re often paying less.
“Those are the buyers that are setting the price point,” Jeff Kulik, a managing director at Bank of America Corp., said on a panel at the conference organized by Solarplaza.
Infrastructure funds typically seek unlevered after-tax internal rates of return of about 8 percent, said Venkataraman of Moody’s.
Earlier this year, when yieldcos dominated the dealmaking, acquired assets produced an unlevered after-tax IRR of about 6 percent to 7 percent, said Carl Weatherley-White, president of Lightbeam Electric Co., a Sausalito, Calif.-based company that’s looking to buy and operate clean energy power plants. Now, it’s about 8 percent to 9 percent.
“No question, prices will go down as you eliminate buyers,” he said. “There’s a price discovery going on.”
This new price range will have a significant effect on developers, which often build their cost projections around the aggressive prices offered by yieldcos.
“If an asset moves 100 basis points, that affects your development fee considerably,” Weatherley-White said.
©2015 Bloomberg News
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