You need to take into account that ENEL is the massive Italian energy monopoly with a big treasury and low cost capital. Yeildcos represent competition to their existing biz model. And we know from a recent transaction that some Yeildcos, including Terraform (Sun Edison) are acquiring projects with a 6% unlevered IRR.
Q&A of the week Yieldcos are ’financial arbitrage,’ not value creation Enel Green Power, the Rome-based company that is one of the world’s largest operators of renewable energy, with nearly 10GW of wind, solar, geothermal and hydro-electric plants installed, says it sees no attraction in setting up its own "yieldco" to own commissioned projects. Francesco Venturini, chief executive of EGP, told Clean Energy & Carbon Brief in an interview that yieldcos, a specialist corporation set up to own assets and pay a large proportion of cash flows to investors in the form of dividends, are creating little value. "I actually worry," he said, that if something goes wrong with a yieldco, "then people may think that renewables are a bad thing." North American yieldcos - together with their somewhat different European equivalents, the quoted project funds - sold a record $5bn worth of shares to stock market investors in 2014, and have continued to be a busy area of renewable energy investment activity in the early months of this year. Venturini was speaking on the fringes of the annual Bloomberg New Energy Finance Summit, which took place in New York on 13-15 April. In the interview, he also spoke of Enel Green Power’s interest in the Egyptian solar and wind markets, and of his hopes for a "rethink" by the government in Romania, one of the European countries that has made retroactive changes to policy support for existing renewable power projects. |
Q. What trends are you seeing in terms of investment in renewable power without subsidies? A. We are seeing fully cost-competitive renewables for the first time ever in places such as Brazil. And in the US, wind projects are going ahead even where there is no obligation on the utility to add more renewables and even when gas is so cheap. Utilities are investing because their customers want cleaner energy. It is people power. Small utilities, in particular, also realize the need to try to avoid volatility in the price of the power they are buying. Wind and solar can offer that. And there is also the advantage of speed – to build a 150MW wind farm, we need less than nine months. For a 150MW gas plant, you would need at least three to five years. If there is a quick need for power, renewables are the easiest way to do it, and that is why we have seen so much demand from emerging economies. It is not just about cost. Q. What does Enel Green Power make of the yieldco phenomenon on both sides of the Atlantic? A: Yieldcos are an important part of the equation now because of the specific circumstances of low interest rates and investors’ need for yield. To be able to deliver their promises to the market, yieldcos are buying projects at 8.5% unlevered internal rates of return - otherwise their numbers do not add up. That is effectively the market price so, in my view, there is no real value creation going on. It is pure financial arbitrage.... This is an excerpt from the Clean Energy & Carbon Brief published weekly. To subscribe to the Clean Energy & Carbon Brief, click here. |
Monty Bannerman
ArcStar Energy
+1-646-402-5076
www.arcstarenergy.com
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