There has been a lot of excitement around YieldCos and their ability to improve the financing prospects for solar.
Major solar companies like Canadian Solar, First Solar, JinkoSolar, SunEdison and SunPower all seem to be investigating the possibilities of launching their own YieldCos. These companies have good reason to be interested: YieldCos have the potential to create value by improving access to cheaper sources of capital and the potential to unlock the value of solar assets that are not being recognized by the market.
When compared directly to sponsor equity, the advantage of the YieldCo is that it may provide capital at a reduced cost. For example, the cost of capital for most financiers is in the 8 percent to 10 percent range. Take-out investors are generally interested in solar projects that model 8 percent to 10 percent returns over a twenty-year period.
NRG’s YieldCo is paying its shareholders a dividend of around 3.5 percent, and Pattern Energy is paying 4.5 percent. While the difference in these rates is not the true difference in cost of capital for a developer, with enough liquidity and stability, a YieldCo may eventually demonstrate a cost of capital in the 6 percent to 7 percent range for certain projects. If projects could be financed with a cost of capital in the 6 percent to 7 percent range (vs. 8 percent to 10 percent), there would be a significant increase in the number of economically viable projects.