Overcoming Wind Energy Project Financing Obstacles

Amanda James

1. Holding Companies: Determining the Best Structure

Developing a wind project requires making careful decisions about how to set up

the legal structure of the business itself. The formation of the new business will

determine who holds title to project assets, the tax implications, the amount of risk for

liability each investor assumes for debt and business actions, and the project’s eligibility

for incentive programs. There are several business entities that can be used for wind

development projects and each has its own legal and financial qualities. Getting a wind

facility up and running is no small task, in choosing which holding company to use,

consider the following elements.1

Personal Liability of Owners

Consider whether the entity will shield investors and owners from personal

liability for business obligations and debts. An entity with a liability shield means that a

creditor’s recourse is limited to the wind project assets and associated revenues.

Generally, the liability shield also covers any legally enforceable claim for money related

to the operations, such as a money judgment from a lawsuit against the project.2

How Taxes Are Assessed

Consider how income and losses of the business entity will be taxed. Different

forms of business entities can receive different tax treatment for income. Some

businesses are taxed on the income separate from the entity’s owners and the investors

1 Jessica A. Shoemaker, Farmers’ Guide to Wind Energy 10-2 (Karen R. Krub ed., Farmers’ Legal Action Group, Inc. 2007). [hereinafter Shoemaker, Farmers’ Guide]. For more information about these and other factors to consider when choosing a form of business entity, Farmers’ Legal Action Group, Inc. (FLAG) has produced a Choice of Business Entity booklet as part of its Farm to Market: Legal Issues for Minnesota Farmers Starting a Processing or Marketing Business series. Although these materials were not written with a wind project in mind, they contain general information that could be useful. For a copy see FLAG’s website at www.flaginc.org. 2 See Shoemaker, Farmers’ Guide at 10-2, 3.

are taxed on income distributions from the business. Some businesses do not pay taxes

on the entity’s income, but rather the income passes through business directly to its

owners and each owner pays tax on his share of the entity’s income.3

Complexity of Formation and Operation Requirements

Consider how the business will be governed and controlled. Some entity types

are more formal than others and have regular reporting requirements while others simply

require engagement in business activities with the intent of acting for the business

interest. Governance and control of an entity can be by direct owner vote, or it can entail

a complicated structure with a board of directors, officers and shareholders. Consider

whether the entity should require annual shareholder meetings, board of director

meetings, formal record of certain actions as in the case of a Corporation, or consider if

the entity should have more flexibility such as that common to Partnership management.4

Impact on Wind Incentives and Other Regulatory Restrictions

Eligibility for some government wind incentives may depend on the

characteristics of the individual owners and the investor’s tax appetite for taking

advantage of the various tax credits. The entity type could also implicate more

compliance burdens such as state and federal securities regulations if investors are

solicited to infuse capital in the project.5

Typical types of business entities for commercial scale wind projects include

General Partnership, Limited Liability Partnership, Limited Partnership, Limited Liability

Company or Cooperative entities.6

2. Crafting Project Agreements That Assure Investors

Purchase Power Agreements (PPA)

3 See id. at 10-3.4 See id. at 10-4.5Id.6 See id. at 10-5

To make a project financeable, it is critical to find a willing utility purchaser to

negotiate and contract for a long-term (10-30 year) power purchase agreement. A lender

will not secure financing if the credit worthiness of the power purchaser is not investment

grade. Municipalities and utilities are examples of credit worthy off-takers/ energy

buyers.

The details of the Purchase Power Agreements (PPA) are often very important in

determining whether or not a project is economically viable. It is the core document for

obtaining financing because it provides the terms for a predictable revenue stream from

the energy output associated with the project. The wind facility owner agrees to make

available up to a certain amount of electric generation capacity by a certain date and for a

certain time period and a third party purchaser, usually a utility, agrees to pay for both the

capacity available to it and for the energy dispatched.

One of a PPA’s most important terms is the price to be paid for wind energy

produced and how the price will be paid over the life of the contract. It could stay flat or

escalate over time.7 It is essential to define what is being purchased, meaning the energy

produced has a value but the Renewable Energy Credits associated with that energy may

also be purchased for a certain value. Most PPAs include a development timeline and

schedule milestones such as when financing will be obtained and when turbines will be

ordered, and may even require the project developer to give the power purchaser regular

status reports on progress.8 Milestones should match construction and supply contracts.

The seller is responsible for obtaining permits, financing, constructing the system,

interconnecting, obtaining incentives, etc. Liquidated damages are included for delays in

milestones.

A PPA spells out the effective date the agreement takes effect and the duration of

the agreement and may include a renewal option.9 The duration of the PPA term must be

longer than the financing terms as the debt repayment will be scheduled over a period of

7 See id. at 9-11.8 Id. at 9-12.9 Id.

time and it is important to ensure a source of revenue over that period to allow for

reliable payment. The PPA must also match any land lease and easement terms.

The output from the energy project will be estimated in the PPA.10 The seller

predicts how much energy the project will produce over the life of the agreement. It is

key that the minimum production commitments and delivery requirements match the

technical capabilities of the facility. This output is measured on a rolling average basis,

typically over twenty-four months and often capped as a percent of the contract. A PPA

typically will specify what the damages will be in case of failure to meet the output

commitment, how damages are measured, and to what extent it justifies termination of

the agreement.

A PPA must explicitly set forth the point of delivery and clearly describe how and

where it is measured.11 The contract usually requires the developer to deliver the

generation to a specific point at which the sale occurs. If the delivery point is a long

distance from the wind facility, the developer will need transmission service to the point

of delivery. Transmission costs can be very high and may implicate wheeling

regulations, so it is important the PPA is clear about these arrangements.

A PPP will usually list events that constitute “default” of the agreement. This

might include failure to make scheduled payments or delay in meeting milestones on the

development timeline. The PPA should indicate the cure periods, which are generally

more flexible for non-payment defaults, and the rights and remedies to the non-defaulting

party. The PPA will include a default provision about lender’s cure rights that requires

notice of default, consent to collateral assignment, and rights to take over the project.

The PPA must provide provisions which allow the project owner to assign the owner’s

rights under the contract as security for the project debt and allow the lender to cure

defaults and perform the owner’s obligations under the PPA.12

10 Id. at 9-13.11 Id.12 Id.

Termination rights should be set out in the PPA to allow for either party to

terminate under certain circumstances. Termination damages might be included as a

certain amount per year as some measure of lost present value of the revenue stream.13

Risk allocation is essential for any PPA. Curtailment refers to a reduction of

output delivery that results from a choice or action by either the project owner or the

energy buyer. Compensation to one party for the other’s curtailment should be limited to

specific events, such as system constraints, unscheduled outages and repairs, emergency,

scheduled outages, force majure and seller action. Liability should also be capped in the

PPA.

Other Key Project Agreements

Other key project agreements to secure include Engineering Services Agreements,

Procurement and Construction Contracts, Interconnection Agreements, Balance of Plant

Contracts, Turbine Supply Agreements, Operation and Maintenance Agreements,

Warranty Agreements, Corporate Guaranties and Letters of Credit.

The Turbine Supply Agreement represents the largest investment and it is

important to evaluate the supplier’s creditworthiness and explicitly state how payment

will be made and where delivery is made. Some turbine suppliers require upfront

payment or a notice to proceed payment, others take payment at the time the turbines are

delivered and still others allow for payment post testing, upon completion of the install.

The delivery point matters because that is the point in which title is transferred and

transportation must be arranged and insurance must be obtained in advance. In any

turbine agreement, it is also important to include an assignability provision in the event

the project owner wishes to assign the contract and/or turbines to another project. The

lender and investors will want to make sure the supply contracts also contain warranty

provisions.

An Operation and Maintenance Contract typically provides for ongoing

responsibility even after construction of the facilities is complete. Key elements of this

agreement include the duration of the contract, how compensation is determined (cost 13 Id. at 9-16.

based versus incentive based), the scope of work, staffing of an experienced operator,

specific standards of performance, and termination provisions.

Warranty Agreements should include the term, typically two to five years, the

rights and remedies allowed if a party fails to perform obligations under the agreement.

Remedies might include repair, replacement or buy-down on equipment. Warranty

agreements often provide exclusions to the warranty for normal wear and tear or the

project owner’s actions causing operational issues.

3. Choosing the Best Financing Structure

Developers wishing to directly invest in a large scale wind project will face a

variety of legal and technical issues including how to finance the project, obtain contracts

to sell the energy output, obtain contracts to operate the facility and organize the business

structure of the project.

Sources of financing include equity, debt and direct government support. Equity

financing means the sale of an ownership interest in the wind project, the equity investors

take the risk that their capital investment may not guarantee a return.14 The developer

gives up some of the ownership rights to the equity investor since their ownership rights

may include both financial rights and governance rights. That is, the equity investor is

usually entitled to a portion of the profits and often has some input in making business

decisions.

Debt financing entails borrowing money from a lender.15 The borrower must pay

back the loan with interest. Over the life of the project, the cumulative interest can add up

to a significant amount of the total costs. The lender has no ownership interest in the

project but typically requires a security interest in project assets which could be

foreclosed on if the project loan is in default.

Government financing programs are available for certain wind projects. The

U.S.D.A. has offered to finance a certain percentage of a developer’s initial investment in

a new energy project. Because the direct government assistance is a grant, the money

14 Id. at 8-3.15 Id. at 8-5.

does not need to be repaid and there is no investor ownership attached. There are other

government financing programs that include reduced interest rates for certain

government-subsidized loans or government issued loan guarantees.16

Wind projects are capital intensive and the bulk of the costs are incurred upfront,

because of this, the purchase and installation costs are mostly financed. Typically the

developer’s first step in financing a wind project is to obtain equity investment. Lenders

will often loan funds only after the project has commitments of all needed equity

investment. The initial project developer or purchaser will pay a down payment at the

beginning to evaluate feasibility and fund many of the pre-development activities

including evaluation of the wind resource, preliminary analysis of interconnection and

transmission issues, property interests at play, initial negotiations with potential power

purchasers, evaluate environmental and regulatory permit requirements, etc.17

Typically, actual funds from lenders and major equity investors will not be

available until the pre-construction activities are completed. Once completed, the

developer must obtain financing for the actual construction and operation costs, usually

this entails a combination of debt and equity.18 Equity investors are likely to be

businesses who can take full advantage of the federal tax credits associated with the

project, sources may include banks and insurance companies and other corporate

investors with passive tax liabilities.19

Existing Financing Structures

Given the huge capital undertaking required to build a wind project, the average

developer struggles to put up a project entirely on their own and frequently partner with

outside, tax-motivated equity investors. Developers can raise the needed capital quickly

with a co-ownership arrangement. Typical operating structures include the partnership

flip, the leveraged lease and the inverted lease. Each has its advantages and variations and

depending on the requirements and investor.

16 Id. 17 Id. at 8-8.18 Id. at 8-9.19 Id.

Partnership Flip

Essentially, this model works by engaging a tax-motivated equity investor who

will provide a majority (99%) of the cash equity and nearly own the entire project for the

first ten years.20 The equity investor then “flips” the project ownership back to the local

investors for the second half of the project. The co-ownership arrangement is carefully

designed to allow the tax-motivated equity investor to get the return on their investment

in the first ten years when the Production Tax Credit (PTC) is available.21

The project’s business entity is typically an LLC in the flip scenario. For the first

ten years, the equity investor receives the majority of the project’s profits in exchange for

the investor’s initial outlay of capital. The project’s debt obligations are paid down

during this period and the equity investor pays for most of the project’s costs. The project

developers receive only a very small percentage of the project’s income during the first

ten years.22

After ten years, (or until the investment reaches its target flip date), ownership of

the project flips and allocations reverse.23 The project developer receives the majority of

the cash flows for the remaining years of the power purchase agreement. The project

developer generally has to buy out the equity investor of its ownership interest at fair

market value, but it will be at extremely depreciated rates.24

Leveraged Lease

The leveraged lease model is used to finance construction of a wind facility using

developer equity and debt financing. The lease arrangement provides that investor funds

the purchase of the assets with cash equity and acquires the asset, using it as security.

The asset is then leased to the lessee (the project company as the developer) using non-

recourse term debt, and periodic payments to the Lessor to service the debt. The

20 Id. at 10-11.21 Id.22 Id. at 10-12.23 Id. at 10-13.24 Id.

developer repays the construction loan from sale of the project’s proceeds. This structure

can be put in place up to 90 days after assets are placed in service.

Investor now owns the Lessor entity that owns the assets and developer owns the

Lessee entity that operates the assets. This is a true lease for tax purposes: as owner of

the Lessor entity, the investor receives all tax benefits including the investment tax

credit/cash grant and is entitled to tax deductions for depreciation on the asset and interest

on the loan. The cash grant can be assigned to the Lessee however.

Inverted Lease

The inverted lease structure is perhaps the most complicated of the three

structures. It involves two partnership entities. First, the developer and equity investor

fund a “master tenant”. The developer and the equity investor make capital contributions

to the special project venture “master tenant”, the developer owns 1% and the equity

investor provides almost all of the funds for this and owns 99% of the tenant.

Next, the developer and master tenant fund an “owner/lessor” to own and lease

the systems to the master tenant. The developer typically owns 51% of the owner/lessor.

The master tenant is a flow through entity for tax purposes and as Lessee sells the power

and RECs, pays schedule rent to Lessor and contracts out for operation and maintenance

services.

Some developers prefer this structure because it allows them to keep half of the

depreciation tax benefits over five years and they can receive depreciation deductions to

shelter rent income. Once the lease expires (6-16 years) control of the operation and

maintenance of the project reverts to the Lessor/Developer without a need for a buy-out.

4. Lender Restrictions That Create Difficulties

Both lenders and equity investors want to avoid assuming too much risk. In order

to obtain financing at the lowest cost, a developer will want to make sure the project is

well documented and is as financially sound as possible. To make the case for financing

at a reasonable cost, developers will need to be ready to negotiate with potential lenders

and investors about how the financial risks can be minimized and who bears unavoidable

risks.

Lenders and investors will evaluate the entire deal documentation and may

require modifications to the transaction documents. They are looking to minimize their

risk that the turbine equipment is unreliable and will become inoperable or the electric

grid has a technical malfunction and prohibits electricity from being transmitted. A

developer will address this through warranty agreements from turbine manufacturers and

the purchase power agreement may need to include language to address circumstances

when energy cannot be delivered as promised.25 It is key that the basic paperwork

executed between the developer and the power purchaser, landowners, equipment

providers, contractors, engineers, transmission companies are all in place and give

protections to lenders.

There is some risk that the fuel source is unreliable, that is, predictions for wind

conditions and capacity factors may not hold true in the short term.26 Lenders and

investors will evaluate these assumptions and consider whether the project will meet its

anticipated revenues, often a margin of safety is created to account for short term

volatility.

The government assistance for constructing and installing new energy projects has

been anything but predictable and poses some risk to a wind project.27 The “boom-and-

bust cycle” of expiring and expanding production tax credits has caused concern to

investors and lenders as it directly affects the financial viability of a project.

Lenders aim to ensure the project will perform as projected throughout the

financing term and will require an independent expert supervise the work and plans and

the ability to address any problems that arise. This could entail lender involvement in

problem solving or a lender’s right to take over the project if it gets into trouble.

Lenders will evaluate a project’s key construction and operating assumptions

including project cost and schedule, capacity factor, performance guarantees, stability of

25 Id. at 8-11.26 Id.27 Id.

the regulatory regime, the purchase power agreement, site control, assignment and

consent of core contracts, review and assignment of core permits, loan repayment and

security provisions. Lenders typically require a security interest in all of the project

assets to secure repayment of the loan, giving the creditor the right to take a certain asset

as payment for the debt if the developer defaults on a payment.

5. Securing Financing with no Power Purchase Agreement

In some instances, one of the most difficult challenges in developing a wind

project is finding a willing purchaser to commit to a purchase power agreement with that

developer. However, some “merchant” plants have been constructed without the

financial safety of a long-term contract to the facility’s capacity; they rely on the market

for their sales and investors accept the market risk.

While it is less common, there are ways to finance a wind project without a power

purchase agreement. There are only a couple instances where utilities are required to buy

power from an independent power producer like a wind facility. Where mandatory

contracts are possible, the terms may not be profitable for a commercial scale wind

project.28 The federal Public Utility Regulatory Policies Act (PURPA) guarantees specific

purchases of wind energy at specific rates for some small power production facilities.

Specifically, PURPA’s process sets certain criteria for participation and applies to

certified Qualifying Facilities (QFs), which include renewable energy generators with a

capacity of 80 MW or less.29 PURPA guarantees a right to interconnection and a

particular price for wind power, that is, utilities are required to purchase a QF’s generated

energy at a utility’s avoided cost rate. However, changes to PURPA in the 2005 Energy

Policy Act allow some utilities an exemption from the purchase obligation.30

In order to qualify for the QF status, an owner of a wind facility may either self-

certify or apply for FERC certification, the latter is more expensive but it provides more

assurance for a potential lender.31 Not all utilities are required to do business with a QF.

28 Id. at 9-8.29 Id. at 9-3.30 Id.31 Id. at 9-4.

Some states only require state regulated utilities to enter purchase agreements and other

states subject all utilities to the mandate.32

Although, PURPA guarantees a power market, the PURPA avoided cost rate paid

to the QF is sometimes not very favorable for incentivizing wind development. The

avoided cost is equal to the cost to the electric utility of the electric energy which, but for

the purchase from such QF, such utility would generate or purchase from another

source.33 But, with the help of government incentive programs, some wind projects have

been able to make a profit by generating electricity below the utility’s avoided cost.

6. Navigating the Current Tax Subsidy Landscape

Wind energy development in the U.S. has been heavily dependent on government

incentives in the form of income tax credits or other income tax relief. This presents a

challenge for many developers who lack sufficient tax liability to take full advantage of

tax incentives. Wind developers often sell the “tax equity” in their project to large tax-

motivated entities, like banks, pension funds and insurance companies who need the tax

write-offs. The role of the tax equity investor is crucial to the economics of a wind

project since they either invest a majority of the initial capital or they pay-as-they-go by

associating their equity payments with actual production tax credits generated by the

facility.

Production Tax Credit

The most instrumental tax incentive is the federal Production Tax Credit (PTC)

which gives the owner/developer per-kilowatt-hour production tax credit for electricity

produced by a qualified facility and sold by the taxpayer to an unrelated third party. The

tax credit can be used against corporate income tax liabilities of the project owner. The

PTC was originally enacted in 1992 under 26 U.S.C. Section 45 and has been renewed

and expanded numerous times, but most recently in the American Taxpayer Relief Act of

2012 (H.R. 6, Sec. 407) in January 2013. The 2013 legislation revised the credit and

extended the deadline for one year. Now the taxpayer is entitled to credits of 2.3 cents

32 Id. at 9-5.33 Id.

per kWh for wind electricity for a 10 year credit period so long as construction began

before December 31, 2013. Any unused credits may be carried forward for up to 20

years following generation.

The PTC is subject to reduction for certain grants, tax-exempt bonds, subsidized

energy financing and other credits received by the taxpayer to offset the costs of building

a wind facility. The credit is taken by completing the IRS Forms 8835 (Renewable

Electricity Production Credit) and 3800 (General Business Credit). The dsire.org

website explains the April 2013 IRS issued guidance on how it will evaluate whether

construction has commenced for the purpose of the year-end 2013 deadline, which was

later clarified by IRS Notice 2013-60, and IRS Notice 2014-46.

Investment Tax Credit

The federal energy business tax credit, known as the Investment Tax Credit (ITC)

available under 26 U.S.C. Section 48 allows corporate tax credit for eligible systems

placed in service on or before December 31, 2016. The ITC credit is equal to 30% of

eligible project costs. The American Recovery and Reinvestment Act of 2009 modified the

options for wind energy facilities that qualify for the PTC, such qualifying facilities could

choose in lieu of the PTC to take either the (i) ITC or (ii) a cash grant from the U.S.

Treasury Department under Section 1603 of the 2009 Stimulus Act to help the developer

pay for a portion of initial costs to get the wind project up and running. Instead of using

the PTC, developers might prefer to take advantage of the ITC tax benefits because there

is no requirement for third party sales, no reduction of credit for subsidized or tax-exempt

financing, and no ownership requirement.

Treasury Grant in Lieu of Tax Credits (Section 1603)

The Section 1603 program offers renewable energy project developers cash

payments in lieu of investment tax credits. Section 1603 of the American Recovery and

Reinvestment Act of 2009 (Section 1603) authorizes the U.S. Department of the Treasury

to make cash payments for specified energy property in lieu of tax credits. The purpose of

the 1603 grant money is to reimburse eligible applicants for a portion of the cost of

installing certain energy property used for business purposes or for generating income.

The value of the award is equivalent to 30% of the project’s total eligible cost basis in

most cases.

A Section 1603 payment is not made until the energy facility is operational, that

is, no payments are made during the construction phase of the project or prior to the

placed in service date. The taxpayer must establish ownership of the eligible property.

The treasury grant is only available to property that was either placed in service between

January 1, 2009 and December 31, 2011 or construction on the specified energy property

began between January 1, 2009 and December 31, 2011 and the property was operational

before the credit termination date. For a brief period, between March 1, 2013 and

September 30, 2013, any awards made to a Section 1603 applicant were reduced by 8.7%

due to sequestration, awards made before that time were not affected. Following this

period, the sequestration rate is subject to change.

 

Accelerated Depreciation

Accelerated depreciation is widely used as an incentive for greater investment in

renewable energy. Accelerated depreciation helps lessen the burden of tax and can

reduce project costs during a company’s start up years. Under federal law, taxpayers who

buy equipment for a business purpose, with a useful life extending beyond the tax year of

the purchase, are allowed to take a tax deduction representing the depreciation of the

equipment over its useful life. Under 26 U.S.C Section 128 and 26 U.S.C. 48, qualified

equipment for building wind facilities is eligible for the Modified Accelerated Cost-

Recovery System (MARCS) depreciation method and such projects are granted an

accelerated depreciation schedule of five years. Instead of depreciating the equipment

over the typical useful life of 15 years, this results in larger annual depreciation

deductions early on.

Additionally, the federal Economic Stimulus Act of 2008, allowed for bonus

depreciation on qualified renewable energy systems acquired and placed in service in

2008, federal law 26 U.S.C. Section 168(k) grants 50% bonus depreciation. The deadline

for systems to be placed into service has been extended and modified several times.

Most recently, in January 2013, the American Taxpayer Relief Act of 2012 (H.R. 8, Sec.

331) legislation extended the placed in service deadline to December 31, 2013.

Currently, no bonus depreciation is available.

7. Grants and Other Incentives for Wind Energy Development

Production-Based Incentives

The federal government and several state governments offer various incentives for

wind energy development. Incentives can come in the form of direct production-based

payments or in the form of government-subsidized financing programs, including direct

government grants and loans.

Some states provide wind project owners with direct cash payments (rather than a

tax credit) per kWh of generated renewable energy over a period of years of the project’s

operation. These forms of production incentives do not require the project owner to have

a separate source of tax liability to take advantage of the program.34

The federal government also currently makes direct production payments

available to tax-exempt entities, and it is intended to give the tax-exempt entities a benefit

similar to the value provided to taxable entities under the federal PTC. Under the

Renewable Energy Production Incentive (REPI) 35 wind energy facilities owned by not-

for-profit electric cooperatives, municipal utilities, local and state government entities are

able to receive incentive payments for electricity produced and sold at 1.5 cents per kWh

for the first ten year period of the project’s operation. The incentive payments are

available only for renewable energy generated by a wind facility first used before

October 1, 2016. The REPI incentive payments are subject to yearly appropriations by

Congress.

State Grant & Loan Programs

34 Id. at 12-2.35 42 U.S.C. §13317

Some states offer grant funds to directly assist wind energy developers with

financing needs. Specific benefits, eligibility requirements and funding sources for the

grant programs vary by state.

Loan programs are a popular form of government-supported project financing at

the state level. Such loans frequently come in two forms, either the government offers

capital at reduced rates or no-interest, or the government acts as the guarantee for

commercial loans which allows developers to obtain more reasonable interest rates.36

An example of a state loan program is the Alternate Energy Revolving Loan

Program administered by the Iowa Energy Center to encourage alternative energy

development in the state.37 Initially the fund was established with a special assessment on

electric and gas utilities, but not runs on the loan repayments and interest.38 The loans are

made in conjunction with local banks and the borrower enjoys an interest free loan for a

term over twenty years, but it may not exceed half of the total costs of the project.39

Federal Grant and Loan Programs

The U.S. Department of Agriculture (USDA) offers a federal program designed to

make investing in wind energy projects more financially viable. The Rural Energy for

America Program provides financial assistance known as REAP Grants to agricultural

producers and rural small businesses to develop renewable energy systems. These grants

are limited to 25% of a proposed project's cost and according to the Database of State

Incentives for Renewables and Efficiency (DSIRE), renewable grants for 2013 were

between $2,500 and $500,000.

The U.S. Department of Energy's (DOE) Tribal Energy Program promotes tribal

energy sufficiency through the development of renewable energy systems and seeks to

provide assistance to tribes for installation of community and facility-scale clean energy

project on tribal lands.

36 Id. at 12-5.37 Iowa Code § 476.46(1), 2(c) (2014).38 Iowa Code § 476.46(3) (2014).39 Iowa Code § 476.46(2)(d)(2), (2)(e)(1) (2014).

Government Promotion of Renewable Energy Purchases

Governments can use their regulatory authority over utilities to create demand for

wind energy.40 States are providing a variety of regulatory mechanisms to promote wind

energy development. Direct initiatives typically take the form of either a mandate, in

which the state requires a specific result, as in the “renewable portfolio standard” (RPS)

or an objective, in which the state asks the utilities to voluntarily reach a target.41

A state’s RPS mandates that certain investor owned utilities or other retail electric

providers provide a specified amount of their electricity from renewable energy sources

such as wind. The mandates often have scheduled increases in the required percentage.

Utilities are generally allowed to meet the RPS requirements through a combination of

self-generation or purchases of renewable energy from other generators, or some states

allow utilities to purchase tradable renewable energy credits (RECs). The Database of

State Incentives for Renewables and Efficiency (DSIRE) at dsireusa.org has the most

comprehensive listing of state and federal renewable energy incentive information.

Federal loans have been instrumental in helping to promote renewable energy

deployment. In addition to providing grants, the USDA’s Rural Energy for America

Program provides financial assistance in the form of loan guarantees, such loan

guarantees may not exceed $25 million.

To the extent possible, a developer of a wind project should research the wide

variety of financing options available and determine whether the wind facility is realistic

and feasible in both the short term and long term. With ongoing inflation and increasing

demand for materials that go into a wind system, costs of installing a wind project are

like to continue to rise. Be sure to consult with business advisors and legal counsel alike.

40 Id. at 12-12.41 Id.