The US yieldco model is being put to the test as share prices for most of the top asset-holding vehicles have tumbled.
Nextera Energy Partners, TerraForm Power, Abengoa Yield, NRG Yield and new market entrant 8point3 Energy Partners are among the companies seeing major losses in value over the last two months.
Nextera Energy Partners has lost more than 38% of its value since an all-time high of USD$47.25 in May. TerraForm, a yieldco set up by SunEdison, has lost a similar amount since July, when stocks were trading at around $40 a share.
The share price is now wavering around $25. Meanwhile Abengoa Yield, one of the early entrants to the US yieldco scene, has been losing value almost continuously over the last quarter.
This year’s high point for Abengoa Yield shares was in May, when the price peaked at almost $39 a share. Now they are at around $20, the lowest level ever.
NRG Yield, which was launched in May, had a brief moment of glory when its share price climbed up until the beginning of June, reaching $27. Since then the share price has gradually slipped down to a level of around $17.
First Solar and SunPower’s yieldco, 8point3 Energy Partners, has not even had that luck since its initial public offering (IPO) mid-June. From an IPO high of just under $21, the stock has settled at a level between $14 and $16 since August.
Concern over US yieldco performance is fuelling speculation that Canadian Solar may abandon plans for dividend-paying spinoff to hold its assets. The Nasdaq-traded panel maker’s plans for a yieldco, announced in March, were said to be under review when this article came online.
In some cases, the yieldco share price falls are being linked to low fossil-fuel prices, but in the longer term many observers are concerned about the effect that interest rates could have on the US model.
“The yieldco market may face ‘a rush to the exit’ from shareholders when interest rates go up,” cautioned Bloomberg in July.
And Gerard Reid, founder and managing partner of finance consultants Alexa Capital, told Solarplaza that if “US interest rates start to go up, that’s when things change because then suddenly pricing will change.
“And once pricing changes then to keep the share price up you need more growth. The interest rate changes could be the big change.”
Despite the concerns, however, not everyone has lost confidence in the US yieldco model.
From an investment perspective, the drop in yieldcos isn't bad for the yieldcos themselves and can actually give prospective investors with better dividend yields short-term.
Paul Ausick, senior editor for the US financial newswire 24/7 Wall St, noted this August that the valuations for most major yieldco stocks are between 40% and 67% below consensus price targets, indicating a major potential upside for investors.
And the Motley Fool, a respected finance advisory service, commented: “From an investment perspective, the drop in yieldcos isn't bad for the yieldcos themselves and can actually give prospective investors with better dividend yields short-term.”
The question now is whether yieldco companies can attract more of this sentiment… and perhaps reverse the share-price slide along the way.
The keys for improving US yieldco performance will be analysed in depth at YieldCon in New York City, USA, this December 3. Register now for your very early bird discount.
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