2017 was a year of big changes for Pattern Energy, the US-based wind yieldco.

As part of a package of “key strategic initiatives”, Pattern announced Canada’s deep-pocketed Public Sector Pension Investment Board (PSP) as its largest shareholder, and the yieldco made the decision to expand from its core business operating wind farms into the less-certain world of project development.

But as 2018 begins, chief executive Mike Garland is confident that Pattern’s new strategic contours have it on track to meet its ambitious goal of nearly doubling its operating fleet to 5GW by 2020, in spite of lingering investor scepticism towards yieldcos nearly two years after SunEdison’s bankruptcy.

Announced last summer, Pattern’s strategic shuffle affects every corner of its family of companies – a group that includes two privately held project developers (Pattern Development 1.0 and 2.0) as well as publicly listed Pattern Energy itself, a top-10 US wind owner and a major player in Canada.

Both of Pattern’s development companies as well as the yieldco are led by Garland, and all are backed by Riverstone Holdings, the New York-based private-equity firm.

Under Pattern’s old model, its private development companies took all the risks and rewards inherent to the project development game, then sold – or “dropped down” – completed wind farms to Pattern Energy. The yieldco, in turn, focused on operating the wind farms, churning out clean electricity for its off-takers and generous dividends for its investors.

But last year’s strategic shift ushered in a number of important changes, which Pattern believes makes it better able to access the billions of dollars of capital it will need to meet its long-term targets.

‘Yieldco model ’ now includes development

To start, Pattern announced it had secured new capital commitments worth up to $1bn to fund early-stage development of its 10GW pipeline of opportunities – spanning wind, solar, transmission and storage. Most of funding will come from institutional investors ploughing money in via Riverstone.

Intriguingly, however, Pattern Energy itself bought a 20% equity stake in Pattern Development 2.0 for $60m, with the option to invest another $240m down the road. That means that Pattern Energy – affectionately referred to by management as PEGI, in reference to its ticker symbol – is now directly invested in the project development game, moving decisively beyond the comparatively low-risk business of operating wind farms.

“It changes the elevator pitch a little,” Garland says of the decision to expose Pattern Energy’s investors to development risk.

But the yieldco always intended to branch upstream into development once its generation fleet got big enough, he says. “We didn’t think it was appropriate at the time of the IPO [in 2013] because the scale of our development activities was so much bigger than our operating cash flows at the public company.”

Today things look different: Pattern Energy has nearly tripled its fleet of operating wind farms since going public, and now owns 2.7GW across the US, Canada and Chile.

“We think we can manage the risks associated with development so that it doesn’t change the risk profile of PEGI in any material way, while still allowing PEGI to enjoy more upside and higher returns by participating further up the chain,” Garland tells Recharge .

Solar moves off the backburner

Among the likely results of Pattern’s changes is a greater emphasis on solar development – even if the projects are never ultimately dropped down to the yieldco. In a nutshell, Pattern likes the economics of developing solar projects, but less so owning and operating them, at least under current market conditions.

“We’ve not been active in the solar market in a significant way until this year – or you could say we’ve dabbled in it a little bit,” Garland says. “That’s because we felt the risk-return profile was less attractive for PEGI than wind. And in the past our feeling was we really had to restrict our [development] efforts to what we thought PEGI could invest in and operate long term.”

Canadian pension fund PSP to buy largest stake in Pattern Energy

“But now, with PEGI owning a piece of the development business, we can develop and sell projects to other companies. Even if they don’t meet PEGI’s criteria, there may be other parties in the marketplace that are more aggressive and willing to pay more for the projects once they’re developed. ”

By investing in the developer, Pattern Energy also gains a new avenue for making money when market conditions are not right for raising capital, Garland notes.

Yieldco stock prices have been volatile over the years, making it expensive at times for Pattern to issue stock to buy new projects. Pattern Energy’s shares currently trade just under $22, its IPO price.

The decision by Canada’s PSP Investments, a state-run pension manager, to buy a large minority stake in Pattern Energy and co-invest in projects coming out of the development companies will also help the yieldco continue to grow at times of market headwinds, Garland says.

Taking stock of yieldcos

With the five-year anniversary of Pattern Energy’s IPO on the horizon, Garland says two things have surprised him about the evolution of the US yieldco sector – and both are frustrations.

The first is the persistent overlap between yieldcos’ stock prices and largely unrelated factors like the oil markets . The second is the “sky is falling” mentality of some renewables investors after events like the election of President Donald Trump.

“If oil and gas prices go down, it doesn’t change our life very much at all,” Garland says.

“We keep recovering every time these extraneous things happen – we’re really not tied to them,” he says. “But it’s been a much more volatile market than we would have liked to see.”

In some ways the yieldco sector is still recovering from the spectacular bankruptcy of SunEdison two years ago, which directly affected its own two yieldcos – TerraForm Power and TerraForm Global – and indirectly affected nearly every US renewables company. Last year Canada’s Brookfield acquired TerraForm Power.

In the early years, some yieldcos “accelerated and expanded too fast and the market just couldn’t handle it”, Garland says. “SunEdison was obviously a victim of that mentality.”

“But the sector has matured, and there’s only a few of us – ourselves, NextEra [Energy Partners], NRG [Yield], and now Brookfield with the TerraForm acquisition – that are really the core part of the market,” he says.

“We’re all much more mature, and in some ways conservative, types of businesses than what the market looked like after the first year or two of yieldcos.”

Among the many factors that makes Garland confident in the long-term US wind market is the brutal and ongoing competition in the turbine market.

“My hat’s off to the manufacturers, and especially the big three – Vestas, Siemens [Gamesa] and GE,” he says. “The three of them have changed the wind market over the past three or four years. ”

Pattern is a long-time buyer of Siemens Gamesa and GE turbines, and last month announced its first-ever order with Vestas, for a 300MW project in Canada.

The broader electricity sector is “just catching up to the realisation of how low-cost” wind energy has become, Garland says.