(FROM THE WALL STREET JOURNAL 5/6/15)
By Cassandra Sweet
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 SunPower
Corp. 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.
Dividend yields for renewable-energy stocks ranged from about 2%
for NextEra Energy Partners LP (NEP), to 4.6% for Pattern Energy
Group Inc. (PEGI), based on recent trading. By comparison, the
dividend yield for companies in the S&P 500 was 1.9% as of
January, according to FactSet.
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.
In addition to the dividends they earn, investors in the new
companies own more focused assets. Investors in NextEra Energy
Partners, for example, own a collection of wind and solar farms,
and that's it. Assets owned by investors in NextEra Energy Inc.
include Florida Power & Light and all its coal, gas and nuclear
plants, and its transmission and distribution assets, as well as
NextEra Energy Resources, which builds and owns wind and solar
farms.
The popularity of dividend-paying companies could fade if and
when the Federal Reserve raises the benchmark federal funds rate.
When rates go up, stock prices of dividend-paying companies tend to
fall, Mr. Molchanov says.
But more IPOs of dividend-paying renewable energy companies are
expected this year from SunPower, First Solar and Canadian Solar
Inc.
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Ms. Sweet is a Wall Street Journal reporter in San Francisco.
She can be reached at cassandra.sweet@wsj.com.
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