Fall of yieldcos could trigger infra investor rebound

With high-bidding yieldcos out of the way, investment returns on renewables may bounce back attracting infrastructure investors once again, argues First Avenue’s Paul Buckley.

The demise of yieldcos – listed companies formed to own operating assets that tend to pay a major portion of their earnings in dividends – could turn out to be a potential boon for infrastructure investors, Paul Buckley, managing partner and founder of placement agent First Avenue, told Infrastructure Investor.

“The thing that had made it tough to deploy renewable energy capital were the high bids that were out there from yieldcos for the assets,” Buckley said. “But the yieldcos have fallen away, which means returns might come back a bit in the US and be more attractive to infrastructure players again.

Looking beyond the US, Buckley also sees opportunities in emerging markets. “Especially in Africa, the returns are fantastic – true private equity-type returns [with] IRRs in the mid-20s, depending on the market.”

But investor interest in renewables is now a global trend, he argued, with economics and increasing awareness among policymakers propelling the sector forward.

“What’s happened is the economics of renewables have converged to thermal, making them viable economically and that’s a big impetus for the industry. The climate change accord obviously raises the profile of the issue big time with pension funds, which in turn increases their focus on renewables,” Buckley said, referring to the agreement signed during the COP21 conference in Paris last December.

As a placement agent, First Avenue is working with a number of asset managers who are seeking to raise capital for renewable energy investments. The firm has also worked with managers such as Stonepeak, Actis and Hastings in the past, helping them raise infrastructure funds.