A new Edison report says that while volatility is likely to be high, overall, it is bullish on the alternative energy and renewables sector.
Edison is positive on the overall alternative energy and renewables space based on the following expectations: a) increased demand driven by global population and energy trends; b) increased demand for cleaner energies in order to address climate change impacts and resource shortages; and c) expected transition of companies from niche players to more mainstream energy/utility providers.
Because of growing concerns about the environment, the report “Renewables Rising – Sector Primer,” predicts renewable energy sources to be the fastest growing segment in terms of electricity generation for the period 2010 to 2040.
The report bases its analysis on a relatively new class of stocks – yield companies (yieldcos), which typically represent subsidiaries of independent power, utility or energy companies that have been set up with fully operational assets, and pay out a high proportion of their cash flows as dividends to investors. These cash flows and their associated dividends are often secured by power purchase agreements (PPAs), negotiated with utilities or other customers, who have agreed to pay for the power for periods of 10- 25+ years on average. In addition, the report looks at some companies that are not yieldcos, but include infrastructure businesses, closed-end funds or even finance companies with varying structures. These companies are referred to as “total return” companies.