PF Archive

North American Power & Renewables: Wind equity players bulk up

17 12 2010

[Editor's note: Shortly after this focus went to press, the US senate passed tax legislation that included an extension to the cash grant for renewables projects. For more details of the programme, see below]Wind power generation in the US has been the domain of small and mid-scale developers for much of the past decade. It has evolved into a neatly-executed model of construction-to-tax-equity financing. The partnership flip structure, the centre of this model, is based on two tiers of equity, and allows sponsors to maximise their tax benefits and reap the rewards for assuming development and construction risk. However, the credit crunch and policymakers’ responses to it have created opportunities for new ownership struc­tures, and may hasten consolidation, or at least some equity recycling, in US wind. Waqar Zaidi, who leads renewable energy for Enbridge, notes that, “The market was built through entrepreneurship supported by tax incentives from the 1990s until around 2000. By selling on the assets post-construction, there was a greater added value.” Despite the increases in debt costs, which are only starting to abate, the utilities that buy power are looking to drive down costs. Says Zaidi “in 2008 and 2009, investors hold­ing assets were making a good return on the PPAs, but there has been a downward pressure on the PPA rate and the market wants to see less arbitrage and to eliminate the middle man.” Challenges in the market The number of PPAs to come to market in the US post-Lehman era has dropped significantly; by...