Steady yields from yieldcos


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In the oil patch, master limited partnerships, or MLPs, were the investment vehicle that brought sophisticated investors into the petroleum business and made them billions. Now, the new path to energy wealth is being blazed by a structure called the “yieldco.”

The MLP was a sort of mutual fund for oil and gas deals: Well-heeled investors pooled their money, the partnership’s managers used the money to buy stakes in drilling ventures or existing fields, and investors sat back and collected royalty checks. In a yieldco, managers invest in hydroelectric plants, wind and solar farms, and other properties that drive income by generating renewable power.

The first yieldco was set up in early 2012 and now, barely three years later, Deutsche Bank analysts are forecasting a market growing from today’s $30 billion to $1 trillion — dwarfing the $700 billion in current value that MLPs have created for their owners. The advantages: Yieldcos are traded on the stock market, so investors can jump in or out at any time; renewable energy systems offer a more predictable product yield than oil and gas wells, which can be temperamental; and renewable energy’s prices don’t churn in response to geopolitical turmoil.

TRENDPOST: Look for yieldcos to increasingly shift away from hydropower and wind, instead emphasizing solar power, due to sunlight’s globally more plentiful locations.

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