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Wall Street Pumps Billions Into Renewable Energy
By TIM PUKO
http://blogs.wsj.com/moneybeat/2015/06/25/wall-street-pumps-billions-into-renewable-energy/

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After years of lofty promises, Wall Street believes the renewable energy industry can produce a payoff.

In just a few years, investors have gone from zero to billions in the amount of money they’re pumping into renewable-energy companies and environmentally friendly projects.

Tax-equity funds and specialty financial tools like “green bonds” and yieldcos have become increasingly popular. And investments in the renewable-energy companies that benefit from these financial tools have far outperformed those in oil-and-gas drilling and coal mining since the start of 2013, according to Bloomberg New Energy Finance, a research arm of Bloomberg LP.

Analysts, bankers and investors at the Renewable Energy Finance Forum in New York this week were ebullient. Many see the sector as past a tipping point: Skepticism has melted among the financial brokers of the energy world, and they have started to fund the renewable-power sector as a legitimate upcoming rival to fossil fuels.

“Wall Street is really warming up to this,” said Kevin Birzer, chief executive of Tortoise Capital Advisors, which manages $18 billion. “And I think we’ll see a lot more of it.”

U.S. solar companies had closed a cumulative $2.6 billion in tax-equity funds by late 2014, up from nothing about five years before. “Green bonds,” a type of debt designed to fund environmentally friendly projects, drew $40 billion in investment in 2014, about eight times what it had seen in 2012. Yieldcos have had $4 billion in issuances announced this year, up from about $2.5 billion in each of the last two years, according to Bloomberg NEF.

Including renewable-energy assets into financial packages like securitized debt, green bonds and yieldcos have been one of the biggest sparks for new investment. Many investment fund managers avoid the risk of direct investment in real estate and infrastructure, so these financial tools allow them to put money behind those same projects in a way that is designed to diffuse the risk. They can also market the investments to clients as environmentally friendly.

Yieldcos are a corporate structure akin to master limited partnerships (MLPs) and real estate investment trusts (REITs), designed to produce steady dividends.

Tortoise ramped up its investments in yieldcos starting in 2014, Mr. Birzer said. The firm targets long-term investments and has confidence in yieldcos because their assets come with purchase contracts that guarantee revenue for 20 years, he added. Big gains by yieldcos have helped the firm’s Tortoise Select Opportunity Fund gain 9% this year, a spokeswoman said.

Many investors have also become convinced that, beyond fancy financing tools, renewable power can simply compete. The costs for a new wind power in the U.S. and Europe have now fallen below $100 a megawatt-hour, about on par with coal, according to Bloomberg NEF. It projects solar- and wind-power costs will continue to decline around the world, largely falling behind coal and gas in the decades to come.

Many had predicted hard times for the sector after the financial crisis and the U.S. oil-and-gas boom. Companies went bankrupt and competition became fiercer. Many described it as a “bloodbath,” but really it was a time for natural growing pains that helped the sector consolidate, said Bloomberg NEF’s founder Michael Liebreich.

“There’s certainly optimism that after all of the tumult, prices have really come down,” said Ray Wood, head of global power investment banking at Bank of America Merrill Lynch.

The investments are paying off, too. From the start of 2013 through April, the WilderHill New Energy Global Innovation Index — which tracks companies that focus on cleaner energy, conservation and efficiency – has returned about 50%, while the S&P 500 Oil & Gas index has been virtually unchanged. The Stowe Global Coal index has lost more than 50%, according to Bloomberg NEF.

“There’s all sorts of reasons to believe,” Mr. Liebreich said. “You’re not going to put it back in the box again.”