Power & Infrastructure · Renewables & IPPs
CAFD vs Free Cash Flow in Yieldcos
CAFD is a yieldco's own cash metric, stopping before growth capex. What it leaves out that free cash flow keeps, and how to convert one to the other.
Selborne Research · Renewables & IPPs coverage: 7 guides, 6 company profiles, a primer and Excel model
Educational analysis. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
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CAFD Stops Before Growth Capex, Free Cash Flow Doesn’t
Cash available for distribution, CAFD, is the number a yieldco actually pays its dividend from: cash from operations after sustaining capital expenditure, project-level debt service and partnership-level charges, but before any spending on growth. Growth capex, new wind and solar builds or acquired projects, is deliberately left out, because a yieldco typically funds growth from a separate pool: sponsor drop-downs, project-level debt or new equity.
Free cash flow is the measure used almost everywhere else: cash from operations minus all capital expenditure, sustaining and growth together. It does not carve out a growth bucket. Whatever the company spent to maintain the fleet and whatever it spent to expand it both come out before the number is called free.
That single difference, whether growth capex is inside or outside the calculation, is why the two numbers can diverge sharply for the same company in the same year, and why a payout ratio built on one reads nothing like a payout ratio built on the other.
What a Filed CAFD Bridge Looks Like
Brookfield Renewable’s FY2025 disclosure is the fullest bridge in the sector: it starts from Normalized FFO, a company cash-flow measure close to operating cash flow, and works down.
| Company | Starting point | Deductions | CAFD | Payout | As-of |
|---|---|---|---|---|---|
| Brookfield Renewable (BEP) | Normalized FFO $1,484M | Sustaining capex $98M; wind/solar amortisation of construction revenue $122M | $1,264M | 90% | Year ended 31 Dec 2025 |
| Clearway Energy (CWEN) | Adjusted EBITDA $1,217M | Not itemised in the filing | $430M | ~83% (derived: $358M distributions ÷ $430M CAFD) | FY2025 |
Neither line subtracts growth capex. Clearway’s committed growth at 31 December 2025, the 613 MW Deriva project, 967 MW of repowerings and 291 MW of battery storage, is funded outside its bridge. BEP’s $1,264M is what its existing fleet made available to pay out.
Standard Free Cash Flow, by Contrast
Neither BEP nor Clearway reports a standard free cash flow line; both report CAFD. A conventional FCF figure would start from cash from operations and subtract total capital expenditure, sustaining and growth combined, in one line. It would also, in most presentations, leave in cash that CAFD strips out: partnership or holding-company-level charges, such as incentive distribution rights or preferred payments, that never reach the pool available to ordinary unitholders even though they appear inside reported operating cash flow.
So the illustration below uses round numbers.
Why the Payout Ratio Reads Differently on Each
Take a yieldco reporting $600M of cash from operations, $60M of sustaining capex, and $150M spent on growth projects during the year, distributing $450M to unitholders.
| Measure | Calculation | Result | Distributions | Payout ratio |
|---|---|---|---|---|
| CAFD | $600M − $60M sustaining capex | $540M | $450M | 83% |
| Free cash flow | $600M − $60M sustaining capex − $150M growth capex | $390M | $450M | 115% |
On CAFD, the payout looks conservative and sits inside the sustainable band this site uses for contracted yieldcos. On free cash flow, the same $450M distribution exceeds the cash left after all spending, because free cash flow has already charged the $150M of growth capex that CAFD assumes is funded elsewhere. Neither number is wrong. They answer different questions: CAFD asks whether the dividend is covered by cash from the existing fleet; free cash flow asks whether the dividend is covered once every dollar spent that year, growth included, is accounted for.
Converting Between the Two From a Filing
Where a filing discloses growth capex as a separate line from sustaining capex, an approximate conversion is possible in either direction:
Free cash flow ≈ CAFD − growth capex spent in the period. This moves from the yieldco’s own metric toward the standard one, since growth capex is the main item CAFD leaves out.
CAFD ≈ Free cash flow + growth capex spent in the period. This moves the other way, though it will understate CAFD if the filer also nets out partnership-level charges, such as incentive distribution rights, that a plain FCF calculation would not have removed.
Both directions are approximations. A precise reconciliation needs the filer’s own itemised bridge, of the kind BEP publishes and Clearway does not.
What Matters Most
A yieldco’s CAFD payout ratio and a C-corp’s free-cash-flow payout ratio measure different things, and in a growing yieldco most of the gap is growth capex. Before comparing payout ratios across two companies, check which metric each one is built on.
Renewables & IPPs Sector Primer
Contracted price, contract term and the merchant tail are the inputs. This primer takes them through a multi-period DCF to a value per share, with the spark spread and CAFD bridge for the merchant and yieldco cases.
- 15 sections, PPA-term cash flows and merchant tail to a discounted cash-flow value
- 45 pages
- a contracted yieldco and a merchant combined-cycle generator
- 2 worked archetypes
- contracted share, CAFD and payout, leverage, EV/EBITDA by archetype
- 6-company screen
The Excel model is the primer's two archetype builds live across 10 sheets: a multi-period DCF with a contracted-or-merchant toggle, step-down discount rates for the PPA term and the merchant tail, a spark-spread build for the merchant case and a CAFD-and-payout bridge for the yieldco. Change the realised PPA price, the contracted discount rate or the merchant spread and the value per share moves; the premium and payout sheets update alongside it. It also splits the contracted premium into the part the pipeline explains and the part contract quality explains, splits the PV between contracted years and the merchant tail, and reads EV per kW on both archetypes.
See what's in the Renewables & IPPs Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Power & Infrastructure industries
Frequently Asked Questions
- What is the difference between CAFD and free cash flow?
- CAFD (cash available for distribution) is a yieldco's own metric: cash from operations after sustaining capital expenditure, project-level debt service and partnership-level charges, but before growth capital expenditure. Free cash flow is the standard measure: cash from operations after all capital expenditure, sustaining and growth alike. The gap between the two, in a growing yieldco, is largely the growth capex CAFD leaves out.
- Why do yieldcos report CAFD instead of free cash flow?
- Because a yieldco funds growth separately, through sponsor drop-downs, project-level debt or new equity. Netting growth capex against operating cash flow, as a standard FCF figure does, would make a growing yieldco look unable to afford its own dividend.
- Can you convert a yieldco's CAFD into a free cash flow figure?
- Approximately, if the filing discloses growth capital expenditure for the period. Subtracting that growth capex from CAFD moves you toward a standard free cash flow figure; the reverse, adding growth capex back to a reported FCF, moves toward CAFD. Any partnership-level charges CAFD also strips out, such as incentive distribution rights, need separate disclosure to reverse cleanly.
Read next
Yieldco CAFD Explained
BEP bridge to $1,264M CAFD at 90% payout; CWEN $430M at ~83% derived; 80–95% screen; sponsor pipelines off balance sheet.
Capacity Factors by Generation Technology
LTA = MW × CF × 8,760; norms 91/58/34/24; 1 GW nuclear ≈ 3.8× the MWh of 1 GW solar.
The Contracted Premium in Power Multiples
Bands 11–15× vs 6–9×; +3–5 turns for contracted cash flow, and why integrated books sit between the two.
See it applied
These company profiles apply the concepts from this guide to real public companies.