Excerpt from Wall Street Journal, May 7
Companies that build wind and solar farms are spinning off some of their renewable-power projects into stand-alone companies, creating a new avenue for green investing.
Renewable-energy developers such as NextEra Energy Inc., SunEdison Inc., Pattern Energy Group LP, Abengoa SA and NRG Energy Inc. have transferred solar and wind farms, and in some cases other energy projects, to new companies they have set up and taken public. These new companies sell the power from the solar and wind farms to utilities or other companies under long-term contracts and distribute the profits from those power sales to their shareholders in the form of regular dividends.
Until recently, consumers had limited choices for investing in renewable-energy stocks. They could buy shares in manufacturers of renewable-energy products, such as solar-panel makers SunPowerCorp. and First Solar Inc., but most of these companies are relatively small and don’t pay dividends.
The new renewable-energy companies have had successful share offerings, and share prices for many have risen over the past year, primarily because the dividends they pay are relatively high compared with their share prices, says Pavel Molchanov, an analyst with Raymond James in New York. “The creation of this new category, within the clean-tech domain, opens the door for income-oriented investors to look at this sector, perhaps for the first time,” he says.
Wind, solar and other renewable power sources (not including big hydroelectric dams) generated nearly 7% of the nation’s electricity in 2014. That share is likely to grow to nearly 8% in 2016 as more renewable-power generation is built, according to the U.S. Energy Information Administration.
For renewables, an IPO spin-off is a way to raise cash to expand, and to do so cheaply thanks to investors’ appetite for dividend-paying stocks while interest rates are low. Abengoa of Spain raised $721 million from the 2014 IPO of its spinoff, Abengoa Yield (ABY), which owns solar farms in the U.S. and Spain, wind farms in Uruguay, and other projects.