A yield co or yieldco is a company that is formed to own operating assets that produce a predictable cash flow, primarily through long term contracts. Separating volatile activities (such as development, R&D, construction) from stable activities of operating assets can lower the

cost of capital In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate new ...

See the transcript of a panel discussion with

Lyndon Rive Lyndon Rive (born 22 January 1977) is a South African businessman known as the co-founder of SolarCity, and its CEO until 2016. SolarCity is a provider of photovoltaic systems and related services. Rive co-founded SolarCity with his brother P ...

, CEO of SolarCity, Bob Hemphill, CEO of Silver Ridge Power (formerly known as AES Solar), Jeff Eckel, CEO of Hannon Armstrong Sustainable Infrastructure, Ed Fenster, co-CEO of Sunrun, and Carl Weatherley-White, CFO of K Road Power. Moderated by Keith Martin. Yield cos are expected to pay a major portion of their earnings in dividends, which may be a valuable source of funding for parent companies which own a sizeable stake. Yield cos are commonly used in the energy industry, particularly in

renewable energy Renewable energy is energy that is collected from renewable resources that are naturally replenished on a human timescale. It includes sources such as sunlight, wind, the movement of water, and geothermal heat. Although most renewable energy ...

to protect investors against regulatory changes. They serve the same purpose as

master limited partnership In the United States, a master limited partnership (MLP) or publicly traded partnership (PTP) is a publicly traded entity taxed as a partnership. It combines the tax benefits of a partnership with the liquidity of publicly traded securities. To o ...

s (MLPs) and

real estate investment trust A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping cente ...

s (REITs), which most utilities can't form due to regulatory constraints. Yield cos give investors a chance to participate in renewable energy without many of the risks associated with it. The number of yield cos grew rapidly in 2013 and 2014 through

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...

s. They include: * NextEra Energy Partners * NRG Yield * Brookfield Renewable Energy Partners * TransAlta Renewables * Pattern Energy Group * Atlantica Yield PLC * Hannon Armstrong Sustainable Infrastructure * TerraForm Power * TerraForm Global * 8point3 Energy Partners. * Saeta Yield There is also an ETF (Exchange Traded Fund) that was set up by

Global X Funds Global X ETFs is a New York-based provider of exchange-traded funds that facilitates access to investment opportunities across the global markets. Founded in 2008, it has approximately $40 billion in managed assets, across more than 80 different ...

under the ticker Symbol YLCO, which seeks investment results that correspond generally to the price and yield performance, of the Indxx Global YieldCo Index.

Benefits for parent companies

Deutsche Bank mentioned several benefits of creating yield cos for their parent companies:

References

Corporate finance Types of business entity {{business-term-stub