Wind Today - Q2 2008 - (Page 58)

T echnical Seven Principal Financing Structures Used in Utility-Scale Wind Projects Excluding Utility-Owned Projects The following article is based on a report released from the Lawrence Berkeley National Laboratory in September, 2007. The report, Wind Project Financing Structures: A Review & Comparative Analysis, was authored by John Harper (Birch Tree Capital, LLC), Matt Karcher (Deacon Harbor Financial, L.P.), and Mark Bolinger (Lawrence Berkeley National Laboratory), and was funded by the U.S. Department of Energy. Wind project financing varies from that used for conventional power projects. Wind projects have higher capital costs but lower operating costs; and federal tax support for wind power is concentrated primarily at the generation stage, rather than throughout the fuel cycle. The two main federal tax benefits available to wind projects are the production tax credit (PTC) and accelerated depreciation. Such tax benefits provide significant value to wind projects, but also complicate project finance because many wind project developers lack sufficient federal income tax liability to use the tax benefits efficiently. As a result of this, multiple financing structures have been developed to attract investors, manage risks, and allocate tax benefits to entities able to use them efficiently. Sev Structur tructures Seven Financing Structures There are seven principal financing structures through which most utilityscale wind projects, excluding utilityowned projects, have been financed in the past decade. (Utility-owned projects are excluded because utilities earn a regulated return on investment which can influence their financing in unusual ways.) The seven financing structures include Corporate, Strategic Investor Flip, Insitutional Investor Flip, Pay-As-You-Go (PAYGO), Cash Leveraged, Cash and PTC Leveraged, and Back Leveraged. The basic underlying theme common to all but the Corporate structure is that a tax-based investor receives a majority of the project returns (cash and tax benefits) until it reaches a predetermined internal rate of return (IRR). At that point, allocation of the project’s cash and tax benefits “flip,” such that the developer receives a majority of the returns throughout the remaining life of the partnership. Corporate Corporate The “Corporate” financing structure features an all-equity project capital structure. The corporate parent funds 100% of the costs of the project as equity in the project company. In return, 100% of each benefit stream, including distributable cash and tax benefits, flows to the parent. With just one investor, there is no “flip” in the allocation of cash and tax benefits. trategic Investor Strategic Investor Flip The “Strategic Investor Flip” (see p. 62 for Minnesota Flip concept) is an all-equity structure featuring two types of owners. The strategic tax investor provides almost all (e.g., 99%) of the equity, with the developer providing the remainder (e.g.,1%). Prior to the return-based flip in allocations, each owner receives a percentage of the cash and tax benefits that is proportional to its equity investment in the project. The developer contributes a minimal portion (e.g., 1%) of the equity and receives a minimal percentage of the benefits. 58 Response No. 581 WIND TODA Y Second Quarter 2008 http://www.dr-shrink.com http://www.dr-shrink.com

Table of Contents Feed for the Digital Edition of Wind Today - Q2 2008

Wind Today - Q2 2008 Contents WINDPOWER 2008 - Host City - Houston WINDPOWER 2008 Special Events CanWEA 2008: Fast Forward to Wind Global Wind Plant Ownership Top 15 States with Wind Energy Installed Ranking the Percentage of State Electricity from Wind Largest Wind Farms in the United States Owners with the Most Wind Power Assets in the United States Rick Perry Bluegrass Ridge, Cow Branch, and Conception Wind Farms Loess Hills Wind Farm Bob Emick enXco V and enXco V Repower Climb Assist Devices GWEC Market Forecast Ports of Entry Satisfy Customers WINDPOWER 2008 Schedule Calendar Seven Principal Financing Structures Used in Utility-Scale Wind Projects Raising Project Funds Through Private Placements The Minnesota Flip Business Model Wind Resource Glossary WT Transmission Corn Plus Coop Adds Wind Energy Wind Resource Maps Ryan Orban, Iberdrola Renewables Liz Cussans, TransAlta Wind Bolton & Menk Trachte Port of Corpus Christi NPPD Interstate Truck Rental & Sales Dr. Shrink Aldridge Electric HYTORC Product Surveys Ad Index

Wind Today - Q2 2008

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