Recent changes were made to our report, link here to Addendum

Executive Summary

YieldCos allow investors to gain exposure to a growing renewable energy market. Renewable energy is forecast to grow with strong support from global climate change responses and the US Investment Tax Credit. YieldCos have grown rapidly over the last two years; however, these investments have recently experienced price declines.

A key question for investors now is whether YieldCos’ interests align with their own. YieldCos are complex financial structures and lack transparency on a number of key value drivers. Investors need appropriate governance structures, particularly for managing potential conflicts with their sponsors, to ensure that decisions by the YieldCos align with their interests. We assess the governance structures of a comparable set of YieldCos in this report.

Pattern Energy and Atlantica Yield are more aligned with shareholders compared to Terraform Power/Terraform Global and 8Point3 Energy Partners. All else equal, we consider more alignment as positive for shareholders. Our analysis indicates that several YieldCos are closely controlled by their sponsors, lack independence and may be misaligned with shareholders’ interests.

Going forward, existing YieldCos can adjust their governance structures and investors in YieldCo IPOs should seek better alignment. As a point of reference, Master Limited Partnerships (MLPs) are trialing new structures to improve alignment with their shareholders that act as a guide for YieldCo investors.

Alignment with Shareholders

yieldco cover graphic

Source: Cornerstone Capital Group

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Sebastian Vanderzeil is a Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder. Michael is a registered representative of Strategic Marketing Solutions Ltd., LLC. Member FINRA/SIPC. 

Andy Zheng is a Research Associate at Cornerstone Capital Group. Andy graduated from Bowdoin College with an interdisciplinary major in Mathematics and Economics and a minor in Visual Arts.  He spent his junior year studying abroad at the University of Oxford and the summer prior to that at the Sorbonne in Paris. Andy passed Level I of the CFA Program in January 2014.