Multiple bankruptcies confirm European suspicions of the yieldco’s viability.

Without question, the past year has been tough on the international energy sector as a whole, with the list of uncertainties by far exceeding the list of certainties. Persistent issues such as declining oil prices, increasing threats of climate change, higher penetration of renewables on grids and doubts about the future of the utility business model are creating confusion across the board. Perhaps the only certainty is the absolute necessity for the electricity grid of the future to be cleaner and more accessible.

Add another uncertainty to the list: the future of the yieldco as a financial vehicle to acquire low-cost capital for clean energy projects. While the meltdown of SunEdison was observed around the world, the reality of situation is not restrained within U.S. borders. The scare really hit home in Europe when Spanish clean energy giant, Abengoa, just nearly avoided bankruptcy, further shaking investor faith in the yieldco as a key investment vehicle.

Yieldcos have been considered to be crucial in funding the multi-trillion dollar transition into clean energy. Today, however, many are not so sure. Yieldcos are thought to be advantageous because they allow investors to acquire a portfolio of long-term operating assets. This financial vehicle was a natural solution for renewable developers given their struggle to finance riskier projects on their own. Furthermore, yieldcos solved a challenge for renewables by granting developers access to capital markets through a low-cost, tax-efficient vehicle. As a result, yieldco’s controlled more than 7 GW of operating renewable power assets in 2015 and this number is expected to exceed 15 GW in the near future.

After narrowly avoiding bankruptcy this past March, Abengoa reported over €9.3 billion ($10.6 billion) in debt. Three-quarters of its creditors then granted the company temporary reprieve, allowing for the approval of a debt-restructuring plan. Between 2009 and 2015, Abengoa built €28 billion-worth of projects while its debt-to-earnings ratio grew. Additionally, Abengoa won another lucky victory in a recent U.S. court decision over its yieldco with U.S. debt holders. The U.S. Bankruptcy Court signed off on Abengoa’s bid for protection under Chapter 15, which recognises the company’s ongoing restructuring talks with its banks and bondholders in Spain. U.S. debt holders will have to recognise the Spanish proceedings as the main controlling case.

As other European power producers watch Abengoa limp through its painful yieldco proceedings, their own intuitions and fears about yieldcos are being confirmed. Acciona SA, another Spanish renewable energy giant, was probably right when they ruled out forming their own yieldco to operate some new clean power plants, and instead turned to private equity. Other European energy giants, such as Enel SpA and Energias de Portugal, have avoided them as well.

The International Renewable Energy Agency (IRENA) reports that the renewable energy effort requires $550 billion U.S. dollars in investment each year to keep global temperature under 2 degrees Celsius. As the impacts of climate change intensifies and Europe’s renewable energy goals near their dates, it could be argued that now is the time for a new financial vehicle to help the European energy sector grow. A vehicle that carries fewer risks, investor trust, and can help bring new capital to green investments.

However, is the inherent structure of the yieldco itself really at fault? Or, with parents to blame, are their operations the real issue?