When EverPower Wind Holdings put out feelers this summer to gauge who might want to buy a wind farm, “yieldcos” didn’t even show up. Six months ago, that would have been unthinkable.
Yieldcos are a relatively new game in the energy world. They are publicly traded companies that hold wind and solar assets, distribute most of their revenue to shareholders, and are predicated on continuously growing their holdings to increase those distributions.
In May, when it looked like Strip District-based EverPower was heading for some kind of deal, a yieldco would have been the best guess. It was projected that the company would go public and be able to raise $1.5 billion as a yieldco.
But within a few months, a huge sell-off plunged yieldco share values by a third. So when EverPower dipped its toes into the market, the interest came from utilities and infrastructure funds.
“I think the yieldcos created a bit of froth,” said Jim Spencer, the company’s CEO. “Everybody and their brother wanted to IPO.”
In the past two years, more than 20 such companies have gone public.
Yieldcos, like other growth-oriented vehicles, are designed to gobble up more and more projects, increasing the distribution to shareholders. To acquire those projects or develop them, the companies need to borrow money. With their stock prices tanking, raising debt could be difficult.
As Moody’s Investors Service wrote in last month’s downgrade of NRG Yield, which was the first yieldco that debuted in 2013, the dramatic drop in share prices of all yieldcos has restricted access to equity markets. Without that access, “The yieldco will not function as it is designed.”
Shares of yieldcos fell more than 30 percent in the summer, but recently enjoyed a 23 percent rebound.
“The market this year is going to be the largest market for wind acquisitions since 2008, and most of that has been fueled by yieldcos,” said Amy Grace, head of wind for Bloomberg New Energy Finance.
That just wasn’t sustainable, she said.
That’s not to say that interest in wind power has faded. Infrastructure funds, utilities and other strategic buyers are outbidding the yieldcos because of their lower cost of capital.
“There’s still a lot of demand in the market for these assets,” Ms. Grace said.
Wind growth isn’t much of a question mark, said Michael Speerschneider, EverPower’s chief of permitting and public policy. The Clean Power Plan, the federal answer to climate change that mandates carbon reductions from power generators, will incentivize more wind development. The law, which is being heavily challenged in the courts, is set to go into effect in 2022.
EverPower isn’t waiting to see how the legal battles shake out.
“For me, the Clean Power Plan is less about what and more about how,” Mr. Speerschneider said.
EverPower sale coming soon
Mr. Spencer said he expects EverPower to be sold within the next six months.
It’s been six years since a London-based private equity firm, Terra Firma Capital Partners, bought a controlling stake. That’s reaching the top range of how long private equity funds hold an investment before looking for a payout.
Since 2009, EverPower has grown from being a startup with 62 megawatts of wind capacity installed to operating hundreds of turbines with 752 megawatts of capacity across five states.
It also has a pipeline of at least 13 wind projects that would more than triple its installed capacity if all are built. Mr. Speerschneider said all are in the “mid-to-late stages” with some still awaiting certain permits but none having secured long-term customers for their power nor the financing to build.
“In our evolution, it’s probably as good a time as any to go to a new owner,” Mr. Spencer said. “There’s no shortage of capital or equity to build. The sector is as attractive as it’s ever been.”
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