From their emergence in the market in the latter half of 2013 until early summer 2015, North American power yieldcos played a major role in the sustained growth of renewable power mergers and acquisitions activity. Complemented by renewable project development that was, in turn, spurred by the only recently salvaged expiration of production tax credits ("PTCs") and investment tax credits ("ITCs"), the yieldco participation—fueled both by sponsor drop-down activity and third-party acquisitions by yieldcos—brought significant buying power to the renewable power market.

That role was stymied somewhat beginning late in the second quarter of 2015 by a significant decline in value of many of the publicly traded yieldco vehicles, which negatively affected the access those yieldcos had to the currency that drove their acquisitions across the prior 24 months. As a consequence of an inability quickly to access relatively inexpensive sources of capital, yieldcos will likely go missing to a large extent as a primary driver of the renewable energy M&A market for much of 2016. That is not to suggest that the model itself lacks viability. In fact, the fundamentals of most yieldcos remain very sound insofar as they are the holders of high-quality, long-term, contracted power assets with creditworthy off-takers as counterparties. Rather, it poses the question of what players, if any, will step in to drive renewable power transactions for the foreseeable medium-term future.

Some of the slack created by the absence of yieldcos in the renewable project acquisition pipeline will likely be made up by a mix of utility companies, infrastructure funds, traditional private equity funds, and even direct investment by pension funds. The former—in an effort to digest the Clean Power Plan, meet existing and evolving state renewable portfolio standards, and navigate the volatile home solar market in many jurisdictions—could find themselves buyers and, subject to overcoming some hurdles presented by normalization, may be able to finance renewable asset acquisitions with tax equity and include those assets in rate base. Infrastructure investors could also benefit from a yieldco retreat and may, with lower return thresholds than traditional private equity fund investors, discover themselves advantageously positioned to acquire high-quality contracted assets if the price is right. Similarly, as pension funds continue to increase their direct participation in the power asset class generally, they too may become buyers of renewable projects or portfolios.

Finally, the level of certainty and predictability brought about by the extension of the PTC until 2020 and the ITC indefinitely (albeit tapering down to 10 percent in 2022) should spur meaningful and sustained renewable power project development over the next four or more years, setting up what should be a robust renewable power M&A market for any and all potential participants. Who those participants will be in the short term, and how aggressively the market will heat up, remain to be seen.

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