Marc Groves-Raines, Head of Renewable Energy for Allianz Capital Partners, one of Allianz Group’s asset managers for alternative equity investments, which owns €4.3bn (US$4.78bn) of renewable energy equity assets, says: “I can see the theory, but there may be issues applying it in practice.”
For example, questions over transfer pricing, the value ascribed to a renewable energy asset when it is sold by the utility to the yieldco. “Utilities will want to sell their assets at market value, which is why they are running the strategy they are– that is, targeted competitive processes,” says Groves-Raines. “They want to maximise the value they can squeeze out of the projects, to recycle capital while retaining operational control.”
“Investors would want reasonable scrutiny of how their money is invested and, if you’re simply putting it into a yieldco, that could dilute that scrutiny,” he adds.
“As an investor, you’re one step further removed from the project. You’re purely reliant on the dividends coming through, and you have very little broader control or security – it’s more akin to a pure, subordinated hold-co financing,” says Stephen Jennings, Head of Energy and Natural Resources for EMEA at Japanese financial services group Mitsubishi UFJ Financial Group (MUFG). “It might suit some investors, but not others. Some institutional investors might struggle with their internal ratings models on that basis, whereas they might find it easier lending directly to a sponsor, albeit as very much a minority interest.”