Yieldcos

Yieldcos are a particular type of listed closed-end fund that have been used in the energy sector for some time. They are now proving a popular route to raise and recycle capital from renewable energy and related technologies and infrastructure. A yieldco is a company, often an investment trust that is formed to own operating assets that produce a predictable cash flow, primarily through long term contracts. This is particularly attractive in renewable energy and related areas such as battery storage and energy efficiency; the structure separates higher-risk and shorter-term activities such as R&D and project development, from lower-risk and longer-term activities, such as the ongoing operation and management of a generating asset. 

Yieldcos are expected to pay a major portion of their earnings in dividends, giving investors an opportunity to participate in renewable energy without many of the perceived risks. For pension funds looking for stable, long term yield or for corporates seeking to secure energy supply from specific (but diversified) renewable sources, yieldcos can represent a more suitable investment proposition than a direct investment into the development of a new project.

For project developers, the yieldco provides an opportunity to deliver, obtain a return and free up capital to focus on new project developments. There is growing evidence of investor appetite for the potential expansion of listed yieldcos in London, particularly for those with an investment focus on emerging markets with strong renewable energy potential, such as in India, Africa and South East Asia.