UK and US yield cos on Christmas acquisition spree

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Two prominent ‘yield co’ investment vehicles, one in the UK and the other in the US, have in the past few days agreed to acquire over 100MW of additional solar generation capacity.

Terraform Power, the yield co spun off from integrated PV firm SunEdison, has acquired another 77.6MW of US projects. Meanwhile, UK firm NextEnergy Solar Fund has made a deal to acquire 28MWp of additional PV generation capacity in the UK for £32.7 million (US$50.9 million), taking the company to over 100MWp of such assets in its ownership.

Terraform did not reveal in a statement issued yesterday how much was spent on the new distributed generation acquisitions. It did say however that the transaction will provide around US$21 million in unlevered Cash Available for Distribution (CAFD) next year. Terraform increased an existing Term Loan Facility to make the purchases.  

These particular deals were first announced by Terraform in late October, when it was revealed the 77.6MW is spread across 39 projects in five US states, California, Massachusetts, New Jersey, New York and Pennsylvania with an average remaining contract life on their power purchase agreements of 19 years. They have been purchased from Capital Dynamics US Solar Energy Fund.

Terraform Power’s president and chief executive officer Carlos Domenech said the deals and recent others were evidence of the firm’s success.

“Along with the previously closed Hudson Energy Solar acquisition, the recently announced acquisition of First Wind and accelerated drop-downs from SunEdison, we have demonstrated our ability to execute high-quality transactions that create significant returns for our shareholders,” Domenech said.

Shortly after the announcement of the deals, Terraform said it was increasing its quarterly dividend to US$0.27 per share, a 20% increase over its third quarter dividend. It will be paid out to investors in March 2015.

Terraform Power and its parent SunEdison this morning also announced that the two will purchase an additional 60MW of PV by investing US$75 million into a solar investment fund worth US$175 million in total. The two parties made an agreement with JPM Capital Corporation on that deal, with projects to be built in “2014 and 2015” SunEdison said, although it seems unlikely much of that will be developed or constructed in the next nine days before the end of 2014.

Meanwhile, NextEnergy Solar Fund’s latest deal will see it acquire two UK solar farms, one of 20.0MWp capacity and the other of 8.0MWp. The former will cost NextEnergy Solar Fund up to £23.3 million (US$36.2 million), while the latter will cost up to £9.4 million (US$14.6 million). Both projects are registered as special purpose vehicles and are expected to be connected before March 2015 and qualify for support under the UK’s existing 1.4ROCs regime. This means the fund, which launched its IPO in April this year for more than £80 million, holds 106MWp of UK PV assets which were purchased for a total of around £125 million (US$194 million). NextEnergy Solar Fund announced in October that it was targeting 186MW of projects under the ROC regime before it expires next spring.

NextEnergy Solar Fund this week also filed the placement of some 4,000,000 shares, to raise just over £4 million (US$6.2 million), with the London Stock Exchange at a price of £1.03 per share. It went into effect this morning and according to NextEnergy, brings the firm’s capital to over £185 million (US$287 million).

Yield cos, which represent the bundling of a number of generation assets into one fund yielding returns, are thought to represent a relatively safe and steady return on investment. While not offering huge upsides, they have been thus far popular in their appeal to institutional investors, such as pension funds. Both Terraform Power and NextEnergy Solar Fund were launched earlier this year as part of a wave of yield co launches both in the UK and internationally.

Jamie Richards, a partner at Foresight Group, one of the other prominent UK yield cos, explained their appeal thusly in an interview with Solar Business Focus International magazine earlier in the year:

“We are seeing increasing institutional appetite for solar investment as institutions are made aware of the low volatility and index linked yields that can be achieved.”

Steven Baird, of UK investment advisory firm Kyra Partners, explained then that the popularity of these vehicles with the wider investment community was evidence of solar’s growing maturity.

“The fact that solar and other renewable assets are being placed into such structures is a testament to the fact that they are establishing themselves as a separate and acceptable asset class. The fact that the press like to call these vehicles 'yield cos' is only because the nature of the asset, even in an externally managed structure, lends itself to paying out much higher regular income to investors than in other competing asset classes,” Baird said.

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