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Wind Project Development and Finance Innovations

As 2012 drew to a close and the US Congress peered over their proverial !"iscalcli""#$ wind project developers thro%gho%t the co%ntr& r%shed to commission projectse"ore the passing o" their own Decemer '1stdeadline( )he p%sh was on( Fail%re wo%ld

mean "or"eit%re o" *(022 per +Wh o" prod%ction# or similarl& advantageo%s 1,0' cashgrants( )his was the latest crest in a oom-%st c&cle plag%ing the wind power ind%str&with %ncertaint& since its inception. the Prod%ction )a/ Credit P)C(

While Congress event%all& chose to e/tend the P)C thro%gh the end o" 201'# the

deepl& divided od&s inherent %ncertaint& has le"t man& ind%str& advocates wonderingwhat happens ne/t( )he American Wind 3nerg& Association has rolled o%t plans "or agrad%al P)C phase4o%t in an e""ort to c%shion arrival at grid parit&( Still# man& see theto/ic political climate and its "iscal "oc%s as contrar& to an& "%rther renewal o" the P)C()he& instead see+ other options to red%ce capital costs and drive mar+et trans"ormation inthe wa+e o" the P)C(

)his rie" paper e/amines three promising developments in Wind Project Financeincl%ding. 1 Investment 5ehicles 3/empt "rom Corporate 6evel )a/ation7 2 S&ntheticPower P%rchase Agreements with State Sponsored 8edging7 and ' Federal and State6eadership in Standards Development(

1( Investment 5ehicles 3/empt "rom Corporate 6evel )a/ation

)his con"erence disc%sses two speci"ic vehicles "or circ%mventing the do%leta/ation normall& associated with p%licl& traded entities. the 9aster 6imited Partnership96P and the :eal 3state Investment )r%st :3I)(

Understanding the importance o" s%ch vehicles re;%ires a rie" primer oncorporate ta/ation( 3ver& "or4pro"it %siness "aces either corporate ta/ation or passthro%gh ta/ation( 9ost p%licl& traded corporations "ace "ederal ta/ation twice# once atthe entit& level corporation# and once at the dividend level stoc+holders( Pass4thro%ghta/ation is availale "or most partnerships and allows an organi

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administration recentl& came o%t in "avor o" s%ch an amendment p%licl& thro%gh astatement o" its "ormer 3nerg& Secretar 9r( Stephen Ch%( Un"ort%natel& however# s%cha str%ct%re "aces similar arriers to the P)C in that it wo%ld re;%ire an act o" Congress toincl%de renewale "acilities within its de"inition(

)he :3I) is a ta/ code carve4o%t designed to enco%rage capital li;%idit& withinreal propert& mar+ets( 6i+e the 96P# the :3I)s str%ct%re evades entit& level ta/ationand its shares ma& e p%licl& traded on sec%rit& e/changes( Unli+e the 96P# the :3I)wo%ld not re;%ire an act o" Congress to e %sed in the renewale sector( )he :3I)str%ct%re does have its own r%les however# which c%rrentl& disco%rages its %se "orelectricit& generation( )he Internal :even%e Service co%ld provide a sa"e haror "or s%ch%se & allowing "or separation o" propert& assets "rom generation assets( In "act# it hasprovided similar sa"e harors "or energ& e""icienc& e;%ipment via private letter r%lings#%t private letter r%lings ma& not e relied %pon as legal precedent( I" eno%gh privateletter r%lings on the s%ject are re;%ested# the service is li+el& to iss%e a reven%e r%lingwhich co%ld e relied %pon as investment4grade precedent( 8owever# the Service has &et

to iss%e a reven%e r%ling "or wind generation "acilit& :3I)s(

2( S&nthetic Power P%rchase Agreements and State Sponsored 8edging

)his con"erence disc%sses how green an+s and other state sponsored "acilitiesma& draw investment toward s&nthetic power p%rchase agreements(

A power p%rchase agreement PPA is an agreement etween a %tilit& and amerchant generator-independent power prod%cer IPP to p%rchase a "i/ed amo%nt o"power "rom a "acilit& "or an e/tended term# t&picall& 20 &ears( S%ch an agreement isreasonale "or a %tilit& eca%se it allows them to hedge against to price o" spot mar+etelectricit and advantageo%s to an IPP eca%se a g%aranteed stream o" "%nding ma+es aproject m%ch easier to "inance( PPAs were pop%lar e"ore the move to restr%ct%remar+ets and other constraints have led to their ne/t evol%tion# the s&nthetic PPA(

)he s&nthetic PPA is a PPA that is pop%lar in restr%ct%red mar+ets where pricingis competitive and %tilities have less need "or long4term PPAs( )he s&nthetic PPA is"%ndamentall& similar to a PPA e/cept that its normall& limited to a shorter term andinvolves a third part& who hedges the developers ris+ o" low prices on the spot mar+et ine/change "or ret%rns when prices are high( >ne s%ggestion rela&ed in this con"erence isthat a ?reen @an+s s%ch as Connectic%ts Clean 3nerg& Finance Investment A%thorit orother state sponsored entit& s%ch as BS3:DA co%ld %tili

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%nintended death( 3ndangered ats# eagles# and other irds have res%lted in greene&eshades "or some an+ers d%e to worries that the government might re"%se a ta+ingspermit at some point in the project( >ne s%ggestion "or state-"ederal leadership on thisiss%e is that government ta+ing permits o%ght to that correspond with the li"ec&cle o" awind "acilit and there"ore its investors timeline(

Another s%ggestion rela&ed in this con"erence relates to nim&ism( :ecentlwind project developers have seen a growing opposition "rom residents who re"%set%rines !in their ac+&ard($ >ne s%ggestion "or state-"ederal leadership on this iss%e isto create %ni"orm standards "or o""sets and noise meas%rements so that residents anddevelopers can etter j%dge the impacts o" a project( Comm%nit& wind is a highl&pop%lar means o" comating nim&ism# %t the comple/it& and "ees associated t&picalta/ e;%it& transactions normall& disco%rages comm%nit& scale development( )o this end#a tension e/ists etween local control and state leadership on wind citing processes thatwill re;%ire oth persistence and %nderstanding in p%rs%it o" %ni"orm standards and lowerdevelopment costs(

Innovative investment vehicles# state sponsored hedging# and development o"%ni"orm standards ma& soon help drive costs lower in wind project "inances "%t%re( For"%rther disc%ssion o" another innovative ta/ "ree project development option# see here(

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http://www.scribd.com/doc/173794596/Aggregating-Energy-Investment-Interests-Via-Qualified-501-c-3-Bondshttp://www.scribd.com/doc/173794596/Aggregating-Energy-Investment-Interests-Via-Qualified-501-c-3-Bonds