Yieldco : Modern day investment vechical for risk averce inverse

A yieldco is publicly traded a dividend growth-oriented company, created by a parent company (e.g., SunEdison), that bundles renewable and/or conventional long-term contracted operating assets in order to generate predictable cash flows. (Wikipedia and financere.nrel.gov)

There are so many types of investors. Some of them only invest in IPO, some of them trade with big positions, Some of them may not interested to take big risk. It’s difficult for the risk aversion types to invest in Equity markets. Most of the time they want predictable return, not only return but Cash. That is difficult in Equity as most of the time you need to Sell the Share for receiving amount. So all because of that Financial Engineering develop some investment vehicles. Yieldco is one of them. They are not new and famous in US markets.

The structure of Mutual Funds are very good and easy to understand and so many First time investors choose it. So you may find the same structure with so many other investment vehicles. REIT, ETF, Infrastructure Investment Trust and some other. Yieldco is also in the same category. The best thing of the Yieldco structure is Under this model, the investors get the annual returns like a dividend and the capital remains invested for the long term. In this model, the cost of capital is lowered by separation of volatile assets like development, research and construction.

The model, which has already been gaining ground in the US and some other markets, is used in the renewable energy sector to protect the investors against regulatory changes. American and European companies through IPOs of YieldCos, which are first spun off from their main business and then get listed separately and as many investors know spinoff is one of the best way to give return. According to a USIBC report, there may be opportunities to explore the YieldCo dividend model specifically for Indian smart cities. So may be it is time to invest with some basic study.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter