Video: How Wind Energy Financing Models Are Changing

Renewable energy has been one bright spot in the struggling U.S. economy. This is particularly true of wind energy. Earlier this month, the American Wind Energy Association announced that 2.8 gigawatts of generating capacity went online in the first quarter of 2009, more than in the same quarter of 2008. The industry has managed to put this generating capacity online in spite of a very weak tax equity market, which is starting to evolve and accommodate new models. Many of these new models were topics for discussion last week in Chicago at Windpower 2009.

Traditionally, the financing of wind farms in the U.S. has relied on the federal production tax credit (PTC) and the investment banks and insurance companies with large enough tax appetites to take advantage of them. During this current recession, however, the number of these firms has shrunk from around 15 to four. As a result, developers and financiers have been forced to develop new models in order to get projects built.

“There are a number of things that are happening now. The banks and financial institutions are now doing more club deals rather than taking larger ownership interests in construction financing or debt. Secondly, commitments are being made contingent upon getting more clarity from Treasury for the use of grants,” said Matt Ferguson, principal of the renewable energy practice for the Reznick Group.

“Third, some more creative structures are being developed to take into consideration one party taking a tax credit and another party taking the depreciation. As well as some other innovative ways to raise equity where developers are looking for additional equity, maybe via some sort of reverse merger or other type of transaction to bring in more development and construction capital,” he continued.

GE Energy Financial Services (EFS) is one company that has found ways to innovate. The company, along with Noble Environmental Power won an award earlier in the year for the innovative financing structure that was put in place for a portfolio of three wind energy farms in New York State. GE EFS invested more than US $200 million in the portfolio, which includes the Noble Altona, Chateaugay and Wethersfield Windparks.

A syndicate of banks and financial institutions provided long-term debt, including letters of credit, totaling approximately $440 million. This long-term capital structure replaces construction financing used to build the Noble windparks.

“It was a project that had leverage, we used ourselves as a tax equity investor and there is also a pay as you go component to that to help maximize the amount of debt they could bring to the project. So it had an innovative structure. It got done and we’re very pleased for Noble and for ourselves,” said Kevin Walsh, managing director of renewable energy for GE EFS.

Duke Energy Generation Services (DEGS), the deregulated renewable energy development arm of Duke Energy, on the other hand, is still moving forward by using its extensive balance sheet to take advantage of the PTC and get projects in the ground. Wouter van Kempen, president of DEGS said that the company is still strong, but needs to be ready to change its finance model should the need arise.

“We’ve talked to our development teams and I think we see there is kind of, what I call, a flat quality where it’s off-takers that tend to go seek business with people like Duke Energy because they know we’re going to be around,” van Kempen said. “But in the end, financial markets need to get to a normal level. If the banks don’t start lending there’s going to be a lot of trouble for a lot of people, much broader than just the wind business.”

While each of these companies and groups represents only one part of the picture, the whole picture, at least in the U.S., according to Stoel Rives partner Ed Einowski remains a bit unclear. He said that pending climate and renewable energy legislation still has many developers in a holding pattern and that once the picture is more clear they will be able to move forward with long-term plans.

“The Obama administration has talked very seriously and made it a part of their essential program to have both a national renewable portfolio standard and also to take some action on carbon,” Einowski said. “If both of those things can be done. That would be the thing that would really seal the ability to move forward in the renewables area. We know we have the technology and we know we have the companies that can do it, we’ve proved that in spades over the last decade.” had a chance to talk with all of these and a number of other leaders in wind energy at Windpower 2009 in Chicago last week. To hear more of what they had to say about financing wind project, play the video below.

For more on some of the innovative structures that wind energy developers can take advantage of, read Modeling Choices Impact Tax Equity Financing and Structuring Partnership Financings To Avoid HLBV Losses by Denniss Moritz, principal at Advantage for Analysts.

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