Goldman Sachs has closed fundraising for a new renewable energy company that is aiming to be a solar industry version of a real estate investment trust.
The US investment bank announced it had collected $1.9 billion in equity commitments, led by University of California Regents, as part of an initial fundraising round for Goldman Sachs Renewable Power. The bank contributed $100 million as well and drew $2.1 billion in debt.
Similar to REITs – a financial structure in real estate that buys up developed commercial property and collects lease revenues – GSRP acquires existing contracted distributed solar projects with the intent to draw cashflows from the assets for decades.
The Goldman Sachs venture has already deployed around $1.5 billion, according to Jon Yoder, head of the bank’s Renewable Power Group. GSRP has bought up around 400 US solar projects that generate between 1MW and 10MW each and has partnered with around 130 public and private sector customers.
“We simply buy projects from third-party developers once they’re built,” Yoder told Infrastructure Investor. “This strategy allows people to get high-yield types of returns while taking on investment-grade types of credit risks.”
He said the plan was to hold the assets “indefinitely” and that he expected the strategy to bring in high single-digit net returns.
GSRP is also similar to the yieldco model that became a popular investment vehicle for the solar industry earlier this decade. Developers launched yieldcos as separate companies and used investor capital to buy their own projects. According to Yoder, many yieldcos failed because developers needed to sell their assets at high prices while investors sought deals with low leverage. Yieldcos, hungry to keep growing, took on large amounts of debt.
“Fundamentally, the issue is that you’ve got developers that controlled the yieldcos. That created a very strong conflict of interest,” Yoder explained.
GSRP isn’t developing projects and will only buy existing third-party assets. Yoder said the plan was to invest the remaining capital from the initial fundraising over the next few years and to one day take the company public.