When you combine the growing need for energy with a cleaner way to harness and produce it, then you end up with the proverbial win-win solution. With a growing global phenomenon firmly in place, the yieldcos are attracting more and more investors. In a new research report, Deutsche Bank starts coverage on two top companies to buy now.

The Deutsche Bank analysts, like others on Wall Street, see the yieldcos as a significant growth catalyst for the solar and broader renewables sector. They are also a much easier way for conservative investors who like the space to invest, rather than the highly volatile solar stocks.

TerraForm Power

This may be just the right stock for investors that like the sector, but want a more conservative route. TerraForm Power Inc. (NASDAQ: TERP) owns and operates solar and wind generation assets serving utility, commercial and residential customers. Its portfolio consists of solar projects located in the United States, Canada, the United Kingdom and Chile with total nameplate capacity of 887.1 megawatts. The company was formerly known as SunEdison Yieldco and changed its name last year, and it is perhaps one of the highest profile companies operating as a yieldco. Some Wall Street analysts see distributions rising to 5.65% by 2017.

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Many analysts feel that the combination of dividends and a growth-oriented company in the renewable energy field makes good sense. They also note that the company’s relationship with sponsor SunEdison is a positive because of its large development pipeline and incentive to grow TerraForm’s portfolio, which is composed of projects with long-term contracts in place, solid counterparties with high investment grade credit ratings, very diversified assets (including solar and wind projects) and low asset ages.

The Deutsche Bank analysts think that this top company will continue to further diversify into hydro and transmission end markets and continue to grow cash available for distribution (CAFD) at a faster pace than current Wall Street consensus expectations. The analysts maintain in the report that the company’s competitive advantage also comes from access to lowest cost of capital as well as strong financing capability as demonstrated by innovative, industry leading financing solutions such as warehousing facilities. The bottom line is that TerraForm has all the attributes in a yieldco that long-term growth investors look for.

TerraForm investors are paid a 3.3% distribution. The Deutsche Bank price target is initiated at $50. The Thomson/First Call consensus price target for the stock is $44.56. The shares closed Tuesday at $39.26.

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8point3 Energy Partners

The recent initial public offering sputtered out of the gate and may be offering investors an outstanding opportunity and entry point. 8point3 Energy Partners L.P. (NASDAQ: CAFD) is a limited partnership formed by First Solar and SunPower to own and operate a portfolio of selected solar energy generation assets. While initial Wall Street reaction was less than enthusiastic, some analysts believe that there could be solid upside to the value of First Solar’s stake in 8Point3 Energy. The cost of capital benefits from the launch of the limited partnership is likely to add value to First Solar’s fully developed project backlog, with the monetization of the photovoltaic plants.

The Deutsche Bank analysts like the deal and think that the company differentiates itself from other yieldcos with an outstanding portfolio of high-quality operating assets with strong creditworthy off-takers in the U.S. utility scale market. They also believe that the company has strong growth visibility for more than three years and a solid business model that does not depend on acquisitions. They also cite the strong backing from First Solar and SunPower as another good reason for investors to buy shares.

The Deutsche Bank team also point to a very lean balance sheet with no project level debt and a tight operating expense structure that they feel offers investors increased downside protection for the future. They also point to a conservative CAFD calculation approach and a back-end loaded incentive distribution rights structure that they feel will result in low dilution to current unit holders.

The current 8point3 Energy Partners distribution was not posted. The Deutsche Bank price target is initiated at $25, and the consensus price target also has not yet been posted. The shares closed trading most recently at $17.75.

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The Deutsche Bank selections are just the ticket for investors looking for either a ground floor opportunity or perhaps the most conservative of all the yieldco plays. Either way, it is clear that the future has arrived, and the yieldco structure is here to stay.

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