Understanding Financing Structures in the Wind Industry

There have been a number of financing structures developed in recent years to help fund the rapid expansion of the wind power industry in the United States. A new report from the Lawrence Berkeley National Laboratory released last month examines these financing options to provide a better understanding of how these complex structures work.

These structures feature varying combinations of equity capital from project developers and third-party tax-oriented investors, and in some cases commercial debt. While their origins stem from variations in the financial capacity and business objectives of wind project developers, as well as the risk tolerances and objectives of equity and debt providers, each structure is, at its core, designed to manage project risk and allocate Federal tax incentives to those entities that can use them most efficiently.

The report begins with a contextual discussion of recent trends in the financing of utility-scale wind projects in the United States.

Next, the report describes in both visual and textual detail the seven principal financing structures through which most utility-scale wind projects (excluding utility-owned projects) have been financed from 1999 to the present. These structures include simple balance-sheet finance, several varieties of all-equity partnership “flip” structures, and a pair of leveraged structures.

Finally, using a simplified pro forma financial model and market-based assumptions about the cost of equity and debt capital under each structure, the report analyzes the impact of these seven structures on the levelized cost of energy from a generic wind project.
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