PF Archive

Windy Flats: Pre-pay power

16 12 2009

Cannon Power received a first tranche of stimulus grants for its Windy Point/Windy Flats phase II project in November. The $17.4 million grant, the first of a total of $170 for which Cannon has applied, follows Cannon's close in October of an amended and restated construction financing that allowed the developer to expand the project by roughly 30%. The financing is notable as the reappearance of the prepayment financing structure in US wind. The prepay was once marketed as a way for public power entities to gain control of wind generation and still benefit from the tax benefits available to wind producers. It was, at least initially, an offshoot of the tax equity market. But the structure offers equally compelling advantages to private developers because a wind power prepayment is essentially a loan that reflects the low, usually tax-exempt, costs at which public power authorities can borrow. The pre-pay, however, far from joining tax equity as a victim of the crunch, could benefit from a combination of high long-term debt costs and the US treasury's provision of cash grants. Neither outcome, however, is guaranteed. A wind power prepayment involves an offtaker making a large lump-sum payment to a wind developer at the project's completion, and getting in return a certain amount of its output for a fixed term. The offtaker gets a lower cost of power, to reflect the fact that the sponsor does not have to pay the yields a commercial lender and/or tax equity provider...