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Renewable Energy: Crowdfunding, Yieldcos, and MLPs: Are They the Answer to the Industry’s Financing Issues?


The following was distributed as part of CohnReznick's REsource Winter 2014 issue.

New concepts in capital formation generated a lot of excitement in 2013. Securitization of solar assets in distributed generation, Master Limited Partnerships (MLPs), Solar Real Estate Investment Trusts (REITs), crowdfunding, and yieldcos are ideas that each promised an influx of capital and a reduction in the cost of financing. However, thus far, this promise has not materialized. While alternative funding options are worthy of consideration, thus far nothing has replaced tax equity as a driver of renewable energy project development.

Rob Sternthal, President and Managing Director of Reznick Capital Markets Securities, says: "In my view, crowdfunding, MLPs, REITs and securitization – it's all a red herring. It has taken people's eyes off the ball. Every person in the country would probably have to put in $25,000 to make crowdfunding work for a wind project.”

As a concept, securitization has been in development for several years. Last year, The National Renewable Energy Laboratory launched the Solar Access to Public Capital (SAPC) working group to develop securitization standards for residential lease and commercial PPAs. In November 2013, SolarCity announced its intention to issue $54m in solar securities, backed by PV systems, leases, and PPAs.

Tim Kemper, CohnReznick's Renewable Energy Industry Practice Co-National Director, notes: "You still need all the big players, all the big banks, all the big financial institutions and big IPPs to put in significant amounts of capital whether it's equity or tax equity or debt. The bond market is not going to add more than a few $100 million here and there. There’s no product in the market that’s going to take the place of tax equity and tax equity is what’s needed to make these deals work.”

Even strong performers depend on tax equity. For example, NRG Yield has performed well on the public markets since its launch by parent company NRG Energy in July of last year. But NRG Yield has yet to successfully add distributed assets to its portfolio, thereby accessing the ITC and the depreciation for those assets – all factors that suggest that it could still be in the market for tax equity.

"Yieldcos are not the most tax efficient avenue but they may be better from a capital cost point of view,” Kemper adds. “I'm not sure that they're lowering the cost of capital right now, and as interest rates go up, everything is going to move the other way.”

For more information, contact CohnReznick's Renewable Energy Industry Practice Co-National Directors Timothy Kemper at 404-847-7764 and Anton Cohen at 301-280-1822.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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