Sustainable Energy Infrastructure Assets (SEIA) can be very interesting for investors like pension funds looking for long term low-risk cashflows.
The primary feature of SEIAs from a financial point of view, is its capacity to generate long-term stable and forecastable cash flows as once the capital investment is made, renewable energy sources are by most free. Renewable energy (RE) projects generate electricity through renewable sources. Unlike conventional generation do not require the acquisition of fuel or feedstock (biomass, biogas, and waste to energy constitute apparent exceptions), and therefore their future cash flows are more stable than fuel-based power generation technologies. (Ryall and Riley 2006). Moreover, RE investments offer lower volatility compensating for the risks associated with the total input costs. Such costs are external volatilities of fossil fuel prices, capital costs, operating, maintenance costs, and the carbon costs(Bhattacharya 2012). The cash flows generated by renewable energy assets are similar to those of a long-term bond. This feature is triggering the so-called Yield Companies (YieldCo), which are portfolios of SEIAs. From the finance perspective, they demonstrate similar characteristics to long-term bonds, producing predictable cash flows over 20-25 years—which is the life of most SEIAs. In a YieldCo model (Steffen 2017), project sponsors, often large utilities or independent power producers owning a mix of renewable and conventional generation assets, create a YieldCo by carving out renewable energy plants with stable cash flows and low financial risks into a separate, publicly traded corporation. The model attracts equity investors as minority shareholders (Mendelsohn, Urdanick, and Joshi, n.d.). A strategic reason for choosing the YieldCo model is to replace high-cost capital with lower-cost capital (Varadarajan, Nelson, Goggins 2016) if the financial risk of operational solar and onshore wind plants is much lower than the sponsors’ core business activities.
Sustainable Energy Infrastructure Assets investments using renewable energy sources, such as wind, or solar offer stable long term cash-flows and low volatility
Infrastructure investments hold benefits different from other asset classes as they are protected from market volatility and interest rate risks (Deau 2012). The case is similar for renewable assets—they attract revenues under government-backed, long-term, (Inderst 2009), regulated framework or, where required, are projects benefiting from export credit agencies, or multilateral risk coverage. Moreover, SEIA investments use less energy per unit of output.
