A rapidly growing Pittsburgh wind energy developer could soon be sold in a $1.5 billion deal that analysts say is spurred by the rise of a new corporate structure for renewable energy investment.
EverPower Wind Holdings Inc., headquartered in the Strip District, is expected to be sold by Terra Firma Capital Partners, a London-based private equity firm that has had a controlling stake in the company since 2009. EverPower, which has installed wind turbines across seven states including Pennsylvania would likely be sold to a utility or a company with a so-called “yieldco” financial structure, according to a person familiar with the matter.
EverPower President and CEO James Spencer could not comment on the sale or provide any details. A spokesman with Terra Firma declined to comment on Thursday.
But Mr. Spencer said a sale would not be unanticipated. Large private equity firms such as Terra Firma typically hold investments for three to seven years, he said.
When Terra Firma invested in EverPower, he said, “we were basically close to a start-up,” with 62 megawatts of wind generation capacity. The company now has a capacity of 752 megawatts. “We’ve grown 12-fold in about the last six years. We’re now in the top 20 of U.S. wind companies. Frankly, that’s why we’re attractive to other utilities and large strategic investors.”
EverPower’s impending sale reflects how much yieldcos, named for their promise of high returns on investment, have changed the way renewable energy firms have raised money.
The Wall Street Journal reported on Tuesday that Terra Firma was looking to sell EverPower partly because Terra Firma has struggled to grow its renewable energy assets amid growing competition in the United States from yieldcos.
A yieldco is similar in structure to a master limited partnership, or MLP, a tax vehicle developed in the 1980s that has grown in popularity since the U.S. shale boom. The MLP tax structure treats natural resource companies as pass-through entities for federal income tax purposes. MLPs are publicly traded on shares of cash flow – not net income – and they pass on earnings directly to their shareholders who then pay taxes on that income.
In contrast, the assets of a yieldco would not qualify for a pass-through tax treatment. But for wind and solar farms, they give investors a stable and growing dividend income.
Yieldcos provide a “vehicle that can afford to justify what it takes to build those machines and still earn a cost-of-capital return,” said Matt Orendorff, managing director of investor relations at NRG Energy. NRG developed the first yieldco structure in 2013 with NRG Yield Inc., which held some natural gas and renewable generation assets.
At that time, NRG, an energy giant based in Princeton, N.J., worked with a team of financial advisers to come up with a mechanism that would “highly mimic” preexisting structure, but would attract investment in electricity generation projects.
Paul Holshouser, finance policy manager for the American Wind Energy Association, said the structure has been increasingly instrumental in renewable energy development. Organizationally, Mr. Holshouser said, it’s attractive for larger companies to put renewable projects in a focused venture, and “having the company be something of a specialist.”
“They’re interested in acquiring these projects,” Mr. Holshouser said.
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