Last updated on September 30th, 2019
Let’s evaluate our YieldCos definition as well as some other use case examples.
What is Yield Cos?
Yield Companies (YieldCos) refer to companies that are created to own operating assets that generate predictable cash flows, mainly through contracts that are long term. They help to separate operating assets activities such as development, R&D and construction which are volatile from the ones that are considered more stable.
YieldCos plays a significant role in the energy industry primarily in the renewable energy sector by protecting investors from unprecedented regulatory changes.
These YieldCos cushions the investors from the risks associated with renewable energy, therefore, offering them an opportunity to invest safely.
Definition of Yield Cos and Examples
YieldCos are public trading corporations that offer investors with stable and growing distributions from the operation of assets that generates predictable cash flow. They operate in the same way as the MLPs (master limited partnerships)
YieldCos pays a considerable portion of their total earnings in dividends to the parent companies. The money they pay is a valuable source of funding for the parent company.
Some examples of YieldCos include:
- Pattern Energy Group
- Brookfield Renewable Energy Partners
- Hannon Armstrong Sustainable Infrastructure
- TerraForm Power
- NextEra Energy Partners
Benefits of YieldCos
These are the benefits of YieldCos.
- Unlike most publicly traded stocks, Yield Cos offer the investors a promise of a regular and predictable stream of cash distributions.
- Yield Cos increases the value attached to the parent company by the investors since it shows the ability to grow their assets and dedicate some of them to cash flows.
- A Yield Co offers a tax shield to its investors
- The formation of Yield Cos has enabled solar companies to create an IDR structure which will allow them to benefit in the long run from the growth of the Yield Co.
- Yield Cos significantly widen the investor revenue base
- They enable companies to access public capital, acquire a global investors base, and increase the valuation multiple of their assets.
What do you think of our YieldCos definition? Please let us know if you found our definition helpful.
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