Beyond YieldCos

The document examines the US YieldCo model, which raised $23 billion by mid-2015 but saw valuations crash due to aggressive growth targets that introduced market-correlated risks. It argues that by prioritizing sponsor objectives—such as recycling capital and monetizing undeveloped pipelines—these vehicles sacrificed the low-risk, bond-like characteristics of renewable assets. The authors propose a 'Clean Energy Investment Trust' (CEIT) consisting of a closed set of assets with no growth expectations, which they argue would better align with the needs of institutional investors and lower the overall cost of renewable energy deployment.

• US-based YieldCos successfully raised equity totaling $23 billion by mid-2015, but subsequently experienced share price declines of up to 60% within a few months.
• YieldCos were designed to overcome three primary barriers for yield-seeking investors: high transaction costs of physical assets, illiquidity, and risk concentration from single large investments.
• At the time of their initial public offering, the valuation of US YieldCos was heavily dependent on growth, with an average of 45% of their value based on projects not yet incorporated into the vehicles.
• The focus on aggressive dividend growth—averaging 12-15% compound annual growth rates—increased the implicit unlevered cost of equity by nearly 200 basis points, rising from 4% to 6%.
• By introducing growth linked to market conditions and interest rates, YieldCos added market correlation (Beta) to assets that are otherwise uncorrelated to the stock market; a typical unlevered YieldCo showed a correlation of approximately 40%.
• The US YieldCo model was primarily designed to meet sponsor objectives, including recycling capital for growth, replacing high-cost developer capital with lower-cost capital, and monetizing undeveloped asset pipelines.
• The authors propose the Clean Energy Investment Trust (CEIT) as a sustainable alternative. Unlike US YieldCos, a CEIT would feature a closed set of assets, no growth or reinvestment risk, and the distribution of nearly all cash flows to investors.
• UK YieldCos are cited as a more successful example because they utilized modest inflation-rate growth assumptions, avoiding the boom-and-bust cycle seen in the US market.

APA

Varadarajan, U., Nelson, D., Goggins, A., & Hervé-Mignucci, M. (2016). Beyond YieldCos. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2016/06/Beyond-YieldCos-1.pdf

Chicago

Varadarajan, Uday, David Nelson, Andrew Goggins, and Morgan Hervé-Mignucci. Beyond YieldCos. Climate Policy Initiative, 2016. https://www.climatepolicyinitiative.org/wp-content/uploads/2016/06/Beyond-YieldCos-1.pdf.

Wikipedia

{{cite report |last1=Varadarajan |first1=Uday |last2=Nelson |first2=David |last3=Goggins |first3=Andrew |last4=Hervé-Mignucci |first4=Morgan |title=Beyond YieldCos |publisher=Climate Policy Initiative |date=June 2016 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2016/06/Beyond-YieldCos-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{varadarajan2016beyond, author = {Varadarajan, Uday and Nelson, David and Goggins, Andrew and Hervé-Mignucci, Morgan}, title = {{Beyond YieldCos}}, institution = {Climate Policy Initiative}, year = {2016}, month = jun, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2016/06/Beyond-YieldCos-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }