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Windsights: YieldCos a wind energy game changer

Windthorst-II Wind Farm in Texas, via OwnEnergy
Windsights: YieldCos a wind energy game changer

One of a new “Windsights” series highlighting insights from the WINDPOWER 2015 Conference & Exhibition – in the words of the experts themselves.

One of the most exciting trends in wind energy today is that you can now own stock directly in wind power, and that’s significant for a number of reasons. You might even call it a game changer.

We’ll get into the implications below, but first let’s lay out the specifics of this relatively new mechanism. As our industry matures, we are moving from private to public markets with the emergence of wind-only (or renewables-only) “YieldCos”—that is, publicly traded “yield companies” formed to own assets that pay out a predictable and low-risk cash flow to investors.

A YieldCo is created when a renewable energy development company separates out its completed and operating facilities from its development business and “drops them down” into a publicly traded company it has formed. That company now possesses assets producing a stream of revenue from the generation and sale of electricity via long term power contracts, which provides YieldCo investors with reliable cash flows. Since developers are often the largest investor in the YieldCo, raising public funds enables them to redeploy capital to develop more projects.

Why is this so significant? It starts with the fact that this transformational model reflects the wind energy industry’s maturation and acceptance as a mainstream energy source. The technology, science, and business strength and sophistication behind the wind energy industry have all matured in the last decade to a point at which utilities, the largest users of wind energy, consider it to be a completely mainstream energy source.

The acceptance by utilities, which have the reputation of being cautious by nature and are considered conservative investors themselves, has sent a clear signal to investors: These wind project-holding YieldCos represent a stable, mature asset class in which to invest. And from the wind energy company perspective, the reliable-investment stamp means that the cost of capital that investors provide—that is, capital that wind energy companies can use to develop more projects—is lower.

On a broader scale, by providing access to lower-cost capital, the emergence of YieldCos means the industry now has another tool for continuing to drive down the cost of wind energy. Thanks to technology improvements, siting advances, and other factors, the industry has already driven down the cost of wind by over 50 percent between 2009 and 2013 alone. The trend is expected to continue, and YieldCos are one reason that’s so.

Another transformational aspect of the YieldCo model is that it connects wind energy to public market investors in a concrete way. Retail investors can now include wind energy in their retirement plans. Wind already enjoys strong public support, and now a broader base of Americans will reside even closer to the industry, possessing increased knowledge about it and having a vested interest in its outstanding, home-grown product. Investors in wind conceivably will encourage their utilities to buy more wind. The public’s increased connection with, and awareness of, wind energy can also translate into a more stable policy environment.

These exciting developments and their implications for the industry going forward will be up for discussion at an important WINDPOWER 2015 Conference & Exhibition session, “YieldCos and IPOs – Why New Public Structures Are Adding New Owners for Wind Projects.” I’m particularly excited about the lineup of speakers—whose companies have been directly involved in YieldCos, whether as developers forming them and using the model or in other aspects of the trend.  Panelists include:

  • Dan Elkort, Executive Vice President and General Counsel, Pattern Energy Group LP
  • Pete Keel, CFO, SunEdison, North American Utility and Global Wind
  • Keith Martin, Partner, Co-Head, Project Finance Group, Chadbourne & Parke LLP
  • Ray Wood, Managing Director – Head of U.S. Power & Renewables, Bank of America

Among the issues we’ll discuss: How much will the YieldCo model grow? That’s an important question because the extent to which investors believe it will proliferate impacts the potential for even lower-cost wind power.   Also, how will power contracts be affected by YieldCos, and what does this trend mean for the future of the federal Production Tax Credit?

We’ll be tackling all of those questions, and many others, for this powerful model has spawned countless intriguing issues and exciting possibilities.

Jacob Susman, CEO and Founder of OwnEnergy, Inc., is session chair of “YieldCos and IPOs – Why New Public Structures Are Adding New Owners for Wind Projects.”

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Jacob Susman has been building businesses, investing, and developing projects in renewable energy since 1999. Jacob has led OwnEnergy since its inception, including recruiting and managing its industry-leading team, raising capital, establishing a nationwide brand, sourcing new business, developing projects building customer relationships and generating revenue. Currently, Jacob plays a critical role in overseeing OwnEnergy’s day-to-day operations, while fostering its close-knit culture and directing its long-term vision and strategy. He also manages key customer, supplier and capital-provider relationships. Jacob is an active member of the Board of the American Wind Energy Association and is active in a range of national wind industry and policy initiatives. In 2010, Jacob was named to Crain’s New York ’40 Under 40’, and in 2012, he was named an E&Y Entrepreneur Of The Year Finalist. In 2013, Greentech Media named Jacob one of New York’s Top 10 Cleantech Leaders. Before founding OwnEnergy, Jacob was a founding member of Goldman Sachs' Alternative Energy Investing group, where he was involved in Goldman's investment in Horizon Wind Energy and co-led a portfolio financing that was named Project Finance’s N.A. Renewable Energy Deal of the Year. Prior to that he served as Project Manager for the AES Corporation, working on a team that developed one of the largest power plants in Spain—named European IPP of the Year by Euromoney.

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