yieldco performance
TRANSCRIPT
Yieldco Market Performance
Tom Konrad Ph.D., CFA
US YieldcosPerformance driversInternational Yieldcos
About Me
Editor, Freelance writer
Hedge fund focused on green economy.Head of research.
Global Equity Income PortfolioGlobal Equity Income PortfolioCo-Portfolio Manager.
Invests in high income Fossil Free Green Stocks, including some Yieldcos
Disclosure
Tom Konrad and/or his clients own the following securities discussed:
US: BEP, EVA, HASI, PEGI, PFBOF, PW, PW.PRA,
Canada: CSE, RNW, AQN UK: TRIG
Disclaimer
Past performance is not a guarantee or a reliable indicator of future results. This presentation contains the current opinions of the author and such opinions are subject to change without notice. This presentation is inteded for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
US Yieldcos
Standard NYLD PEGI ABY NEP TERP CAFD
REIT/MLP/LP HASI BEP HIFR EVA
US Yieldcos
Standard NYLD
PEGI
ABY
NEP
TERP
CAFD
REIT HASI
HIFR
MLP/LP BEP
EVA
Sol-Wind Sol-Wind was as proposed Yieldco that
attempted an MLP structure with a blocker corporation to pass tax benefits on to investors.
Pulled in Feb. Reasons cited: Too small ($100M) Too little cash flow ($26M) Unknown sponsor (hedge fund) /
management team MLP Structure still un-tested
Rising Yieldco Valuations Create Virtuous Cycle
Share Price Increase
Secondary Offerings At Higher Prices
More Invested Capital Per Share Higher CAFD
Per Share
Per ShareDividend Increases
More Money To Invest in Projects
What Might Break The Cycle?
Share PriceDecrease
Secondary Offerings At Lower Prices
Capital Per Share Stagnates CAFD Per
Share Stagnates
LessDividend Growth
Less Money To Invest in Projects
What Might Break The Cycle?
Rising interest rates Insufficient new investment opportunities Solar farm price bubble Investor concerns
Conflicts of interest PPA renewal
End of depreciation tax shield
More And Larger Yieldco Acquisitions
Sponsor Conflict Of Interest
Many Yieldcos buy assets from their asset developer/sponsor.
The Good Gives Yieldco access (ROFO) to asset
development pipeline. The Bad
Developer/sponsor has incentive to overprice or sell substandard assets
Ways To Mitigate Conflict of Interest
''Independent Review'' But how independent?
Large ownership stake But requires more capital
Incentive Distribution Rights (IDR) But will reduce dividend growth
Multi-Sponsor (CAFD) Internal development (IPP model)
How Yieldcos Manage Conflicts Independent review only: NYLD, ABY IDRs: NEP, TERP, CAFD, BEP, EVA, HIFR Internal development: BEP, HASI PEGI – Will internalize Pattern Development
when market cap reaches $2.5 Billion (currently $1.9B)
CAFD – Joint sponsors (FSLR & SPWR)
NRG Yield Recapitalization
Original Class A shares split into Class A (NYLD/A) and Class C (NYLD)
Class C shares have 1/100 voting rights Intended to allow more stock issuance while
NRG Energy maintains control. Announced Feb 2015 Completed May 2015
NRG Yield was worst-performing Yieldco around recapitalization period.
Takeaways Strong performance of US Yieldcos is at least
in part to funding acquisitions at ever higher prices.
This can continue as long as investors remain confident.
NYLD's recapitalization shows that conflicts of interest can undermine this confidence.
Many other factors might also undermine investor confidence.
US Yieldcos Underperforming Over Last Month
Only HASI (+3%) not down more than Global Yieldco ETF YLCO (-9%)
Worst Performer: NYLD
Canadian Yieldcos
Mostly former (tax advantaged) income trusts, akin to REITs
Canada ended special tax treatment in 2011, and most converted into corporate structures and/or merged with other companies.
Long tradition of income trusts led to a more stable market with solid comparables.
Canadian Yieldcos
Former Income Trusts Brookfield Renewable*
(BEP.UN) Innergex (INE) Capstone (CSE) Northland (NPI) Algonquin (AQN)
Newcomers Pattern Energy Group*
(PEG) TransAlta Renewables
(RNW)
* Also has US listing.
Canadian Yieldcos
Canadian vs US Yieldcos
Less price appreciation Higher yield (4% to 9% vs 2.5% to 5%) Slower dividend growth (0% to 9% vs 10%
to 30%+) More taxable income Higher retention rates Most both own and develop projects
UK Yieldcos – Investment Company Structure
The Renewable Infrastructure Group (TRIG- Closed-End)
Bluefield Solar Income Fund (BSIF)
Foresight Solar (FSFL)
John Laing Environmental Assets (JLEN)
Greencoat Wind (UKW)
GCP Infrastructure Investments (GCP)
Implications of Fund Structure
Advantages Fewer conflicts of
interest Transparent pricing Reduced price risk
Disadvantages No tax shield Share price tied to NAV Generally cannot be
bought by foreigners Limited leverage
UK Yieldcos – Coping with political risk
July 9 – Removal of exemption from climate change Levy.
Greencoat (UKW)- ''Already factored in'' John Lang (JLEN)- ''Offset by corp tax
reduction'' Worst hit: Renewable Infrastructure Group
(TRIG)- 4p NAV reduction (4%)
UK Yieldcos- ROC Phase-out
Renewables obligation certificates (ROCs) Solar ROCs lowered for new farms after
April 1, 2015. Wind ROCs will phase out in April 2015,
one year earlier than expected. Like ITC and PTC phase out in US, existing
plants keep thier subsidies, and so this may help Yieldco owners of existing plants.
Summary
US Yieldcos have been taking advantage of rising prices to fuel rapid dividend growth.
Many investors seem to be assuming this will continue forever, leading to high valuations and market risk in best known US Yieldcos.
Lesser known and foreign Yieldcos currently seem less speculative.
Questions?
Tom Konrad Ph.D., CFA(406) 686 [email protected]