Clean Energy IPO Boom As Investors Seek Predictable Dividends

The pace of IPOs for wind and solar is accelerating at the fastest clip in two years, benefiting from investors’ interest in the predictable dividends they can pay.

In the second quarter alone, clean energy companies raised $3.8 billion through public markets.

Especially successful are what investors are calling “yieldcos,” companies holding investments in operating power plants that have signed long-term contracts to sell electricity and that can ensure a predictable, steady stream of revenue and dividends.

“There’s really nothing out there that has more predictable cash flows than a solar farm contracted by an investment-grade utility,” Brandon Blossman, an analyst at Tudor, Pickering, Holt & Co. in Houston, told Bloomberg. “Everybody likes a yield vehicle that has growth potential.”

The latest company to benefit from this trend is wind and solar development company Renewables Infrastructure Group Ltd. (TRIG), which raised $460 million when it started trading on the London Stock Exchange on July 29. Its aim: pay investors 6% yields, compared with the 2.31% yield on the UK government’s 10-year bonds.

TRIG is the third company in recent months to go public on the London exchange with this sort of promise.

Greencoat UK Wind PLC kicked off the IPO wave in March, raising $395 million: its goal was $321 million. And Bluefield Solar Income Fund Ltd. (BSIF) raised close to $200 million, luring investors with a planned dividend of almost 4% in the first year.

“Over the last few years, there has been a desire for a yield-oriented vehicle, and one just frankly has not existed in the power space,” Julien Dumoulin-Smith, an analyst at UBS Securities LLC in New York, told Bloomberg

Other examples of companies riding this wave are NRG Yield, spun off by utility company NRG in June.

It controls 1,324 megawatts (MW) of capacity including three natural gas or dual-fired facilities, seven utility-sale solar plants, two portfolios of distributed solar systems and one wind farm. All of them have long-term power purchase agreements. NRG plans to post a quarterly dividend of $0.30, offering a yield of 4.25% by the end of 2013, estimates Bloomberg.

TransAlta, Canada’s largest publicly traded electricity generator and worst performing utility stock, likewise is planning to spin off its renewable energy unit in early August.

The new company, called TransAlta Renewables hopes to raise about $200 million. It will control 1.1 gigawatts (GW) of wind and hydro generation assets.

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