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...
Thank you for printing this article from IJGlobal.
As the leading online publication serving the infrastructure investment market, IJGlobal is read daily by decision-makers within investment banks, international law firms, advisory firms, institutional investors and governments.
If you have been given this article by a subscriber, you can contact us through www.ijglobal.com/signup, or call our London office on +44 (0)20 7779 8870 to discuss our subscription options.
Thank you for your interest in using My IJGlobal.
As your firm uses IP recognition, you will need to sign in with your own unique login and password. If you do not have your own login details, please click here to register.
Alternatively, contact the IJGlobal Helpdesk on +44 (0)20 7779 8870 or email Helpdesk on firstname.lastname@example.org.