How does this make sense? With oil prices dropping, renewable energy investments should increase. Unfortunately, reality is not lining up with expectations. Investors are dropping green energy investments quickly, after a promising start in 2015.
During the first half of the year, renewable energy production and installation costs dropped dramatically as capacity grew. So how did it turn the other direction so quickly? Well, it turns out that the same people who were investing in oil were the ones investing in renewable energy.
When oil prices dropped, investors got scared of all energy investments, not just the ones in oil and gas.
Investors with stakes in oil and gas also bought key renewable energy investments called Yieldcos. These financial vehicles allow the public to buy shares in portfolios of multiple renewable energy projects to distribute risk. The Yieldco pairs with project developers, who are responsible for construction and finding utility buyers, while a Yieldco can offer investors low-risk stocks with better returns than traditionally safe investments, like those from the U.S. Treasury, for example.
These stocks are for dividend investors, or people who hope to generate income from their portfolios. According to Fortune, the investments made financing renewable energy projects a whole lot easier.
Yieldcos are vital because they increase access to public markets and keep costs low. If these stocks fail, the renewable energy market could face some significant setbacks.
Image (c) The David Casey Copley ’70 Library