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Excerpt: PwC’s Jeremy Fago

An excerpt from “Power and Utilities Deals in North America in the Last Year” by PwC’s Jeremy Fago in March's PUF:


"On the renewable side, fifteen to twenty-year long-term contracts with A-rated off-takers, is a pretty desired spot to be in for many investors, particularly in a low interest rate environment, where that thirst for yield has been significant over the last decade since the recession.

From a regulated or hybrid utility perspective, folks continue to look at that because if you’re traded as a utility on yield, those contracted renewable assets and portfolios have some utility-like qualities from an earnings perspective. That’s predictability of cash flows, and for all intents and purposes those cash flows are yielding investments. They fit more nicely sometimes, into that utility fold as far as what that earnings profile looks like.

We saw five to eight years ago, where a lot of the regulated utilities or hybrids that had non-regulated generation looked to shed those portfolios because of the volatility of that cash flow. They were at the mercy of the market from a commodities perspective.

If you’re a P/E traded utility, that volatility is hard sometimes for a dividend investor looking to predictable yield to accept. Renewables, I believe, with fifteen- or twenty-year contracts sit very nicely into that yielding type of investment and are a fine profile for P/E traded investors."

Read the complete article here.