The story also said that
A corrected version of the story is below:
How to fit a wind farm into your portfolio
REITs for renewables: Wind, solar farms are being put into new companies called yieldcos
AP Energy Writer
Energy companies are wrapping renewable energy projects and other power-related assets that generate steady cash into new companies they hope attract investors hunting for dividends.
In an unfortunate victory for corporate speak, they are called yieldcos. They're the electric power industry's answer to real estate investment trusts, which distribute rental income to investors, and master limited partnerships, which distribute income from oil and gas pipelines to investors.
Yieldcos aim to distribute most of the proceeds from generating or delivering electricity to shareholders through a steady stream of dividends. They try to grow the dividend by buying more power projects.
Analysts say they are a relatively safe way to invest in renewable energy — much safer, for example, than buying shares in notoriously volatile solar panel makers.
But analysts caution there are risks for yieldco investors because their popularity has inflated share prices and the concept is so new.
"They are new types of companies, so we have very little visibility into what they might evolve into in the future," says
These yieldcos own power plants that have entered into long-term power purchase agreements at set prices with local utilities. For example, Next Era Energy's
Because these companies own assets operating under long-term agreements, they aren't subject to wild swings in the price of wholesale electricity the way traditional power producers are. The idea is that while some investors would like to pay for the risk and upside of a traditional power producer, many others would rather have a steady flow of cash.
For the companies, these new businesses have created a new and cheaper source of funding to buy or build new power projects.
"It's the biggest thing going on in energy finance," says
One big concern for investors is that share prices could fall, perhaps sharply, if interest rates rise. That's because comparable yields will then be available from safer investments, such as bonds.
Another is that investor enthusiasm in these companies has pushed yields down so far that some barely justify the name yieldco.
Investors are banking on fast dividend growth, which all the companies project. NRG has told investors it hopes to grow the dividend an average 15 to 18 percent per year over the next five years. But that requires buying more projects at good prices. With more and more yieldcos chasing these projects, there might not be enough to go around, or they might get too expensive.
Manabe, of Moody's, recommends sticking with yieldcos controlled by large, stable companies that have many projects available to sell to the yieldco, such as
"I like what they are doing," he says. "But right now it's probably a little premature for us to get in. It needs to be proven a little more."
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