Renewable Energy Project Development And Finance: Advanced .
DOE OFFICE OF INDIAN ENERGYRenewable Energy Project Development:Advanced Financing Process and Structures
Course OutlineWhat we will cover About the DOE Office of Indian Energy EducationInitiative Project Financing Structures- Direct Ownership- Partnership Flip- Sale Leaseback- Inverted Lease/Lease Pass-Through Additional Information and Resources2
IntroductionThe U.S. Department of Energy (DOE) Office ofIndian Energy Policy and Programs is responsiblefor assisting Tribes with energy planning anddevelopment, infrastructure, energy costs, andelectrification of Indian lands and homes.As part of this commitment and on behalf of DOE,the Office of Indian Energy is leading educationand capacity building efforts in Indian Country.3
Training Program Objective and ApproachA specially designed curriculum was created to givetribal leaders and professionals background informationin renewable energy development to: Present foundational information on strategic energyplanning, grid basics, and renewable energy technologies Break down the components of the project developmentprocess on the facility, commercial, and community scales Explain how the various financing structures can bepractical for projects on tribal lands.4
Course AudiencesTribal LeadersStaff/Project Management Primary decision makers Understand terminology Understand key decisionpoints and factorsinfluencing them May be self-managingproject or acting asmanaging consultants Communicate at keypoints with decision makers Require in-depth knowledgeof process5
How This Advanced/In-Depth Course FitsEssentialsBasic process, decisions, andconcepts for project developmentAudience: All involved in projectFacilityComprehensive, in-depth process pathways for projectdevelopment and financing by project scaleAudience: Decision makers and project and contract managersCommunityAdvanced/In-DepthDetailed academic information for deepunderstanding of conceptsAudience: Project and contract managersComprehensive, in-depth process pathways for projectdevelopment and financing by project scaleAudience: Decision makers and project and contract managersCommercialComprehensive, in-depth process pathways for projectdevelopment and financing by project scaleAudience: Decision makers and project and contract managers6
Terminology in These CoursesWhy Is It Important?What Does It Include? Provides commonlanguage for internaldiscussion Assists in interactionwith externalorganizations Increases credibility inproject development Common terms andlanguage for projectdevelopment Acronyms for and roles of:– Federal agencies– Common federal andstate policiesYour resource for reference: DOE-IE Course Terminology Guide7
Key Concepts Tax-Equity Partnership Risk and Uncertainty Roles of the Tribe Levelized Cost of Energy (LCOE) The Project TeamIn-depth information on each key concept available in Advanced Courses8
About the SpeakerTravis Lowder Renewable energy and financialpolicy analyst photo Background in internationaldevelopment and environmentalgovernance9
RECAP: TAX-EQUITY FINANCEAND FEDERAL TAX INCENTIVES10
Key Concept: Tax-Equity Partnerships Tribe can benefit from tax-equity incentives without being taxable Tribe can partner with third-party tax investors and/or developersto gain this advantage– Recent IRS private letter ruling (PLR) supports tribal partnerships withthird-party tax equity– Even with IRS ruling, the Tribe needs capital to build a large renewableproject; the Tribe can enjoy tax incentives by partnering with “Tax Equity,”a corporate investor Tax incentives (Modified Accelerated Cost Recovery System [MACRS]and either Production Tax Credit [PTC] or Investment Tax Credit [ITC])can represent up to half the project value, or reduce project’s capitalcosts by 50% Tribe benefits either by reducing its electricity costs or by offeringa more competitive price for energy/renewable energy credits (RECs)from the project to a utility11
So Why Seek a Tax-Equity Finance Partner? Tax incentives (MACRS and either PTC or ITC) can represent up tohalf the project value or reduce project’s capital costs by 50%120Project Capital Costs100806040200Third-Party-Owned3rd Party OwnedTribe-OwnedTribe Owned (w/o Partner) Tax incentives can help to achieve a competitive price of power Many projects also require state-level incentives to be economic12
Comparison of Tax cceleratedDepreciationTax credit of2.3 /kWh or1.1 /kWh,depending on techTax credit of 10% or 30%of project costs,depending on techDepreciation of eligiblecosts (not all projectcosts qualify) WindGeothermalBiomassHydro Solar Geothermal Fuel cellsDepreciation can betaken with either PTCor ITCBasisEnergy producedover 10-yearperiod. Can becombined withdepreciation ofequipment.Eligible project cost.Credit taken at the timethe project is placed inservice. Can becombined withdepreciation ofequipment.MACRS: 5-yeardepreciation scheduleBonus: 50% first yearaccelerateddepreciation onequipmentExpirationStart constructionbefore 1/1/2014Placed in service before1/1/2017MACRS: NoneBonus: 1/1/201413
INTRODUCTION:PROJECT FINANCING STRUCTURES14
Capital Structure with Tax EquityCorporationsProjectCompanyProject Company/Pass-Through EntityTax EquityPotential Capital Financing SourcesTaxEquityDebtCash EquityOtherTax-Equity Investment StructuresPartnership FlipSale LeasebackInverted Lease15
March 8, 2013 IRS Private Letter Ruling –111532-11 An Indian tribal government is not considered a “governmental unit”or “tax-exempt organization” for purposes of renewable energy taxsubsidies This presumably would permit tribal governments to enter into anyone of the three tax-equity financing structures without jeopardizingaccess and use of federal tax incentives (BIG change) Yet to be tested in the market; Tribes should to seek legal counselIRS Private Letter Ruling: http://www.irs.gov/pub/irs-wd/1310001.pdfPotential tribal implications: http://www.lexology.com/library/detail.aspx?g 2e3eaf47-4fa7-4318-8dff-6ddda49baa5616
PROJECT FINANCING STRUCTURES:DIRECT OWNERSHIP17
Direct Ownership StructurePrimarily for facility andcommunity-scale projectsDirect OwnershipProjectTribe purchases arenewable energy systemwith its own fundingOver time, investmentrecouped from utility billsavingsTribe eedsThe Tribe is the owner in thisstructure and self-generatesits electricity.18
Direct Ownership: Advantages and ChallengesAdvantages Potential to use cheap public debt (tax-exempt debt issuance) Full control over a project: design, operations, and risks Ability to choose what to do with renewable energy attributes generated bythe project (retain or monetize)Challenges The Tribe does not have a tax liability to efficiently apply the federalrenewable energy tax incentives Need expertise to navigate potential revenues from renewable portfoliostandard-driven subsidies Debt lender requirements could complicate the model (if used) Project management expertise is requiredSource: Cory et al. 2008, Pearlman 2011a19
PROJECT FINANCING STRUCTURES:PARTNERSHIP FLIP20
Partnership Flip StructurePartnership FlipRent/Royalty Access/Site ControlResourceOwnerCorporationsDebt Payments ( /mo.)Project Company/Pass-Through EntityDebt Capital Tax EquityProjectPotential Tribal viderIncome: 99% Pre-Flip;5% Post-FlipITC/PTC, MACRSEquity Investment (99%)PPA ( /kWh)Income: 1% Pre-Flip;95% Post-FlipDeveloper Equity (1%)Utility/Off-takerProjectDeveloper21
Cash Flow Example: Partnership Flip, No erationCash Flows and Tax Benefits*DevelopmentCostsFlip point after year 5Tax-Equity InvestorCapitalInvestmentYear -7 -6 -5 -4 -3 -2 -10123456Developer78910 11 12 13 14 15 16 17 18 19 2022
Cash Flow Example: Partnership Flip, With erationCash Flows and Tax BenefitsDevelopmentCostsFlip point after year 5LenderTax-Equity InvestorDeveloperCapitalInvestmentYear -7 -6 -5 -4 -3 -2 -1012345678910 11 12 13 14 15 16 17 18 19 2023
Partnership Flip: Advantages and ChallengesAdvantages Tax-equity provides most of the capital up front Easier way for Tribe/developer to own the project in the long run(than sale leaseback) Generally familiar structure for wind and solar industry, so manytax-equity investors have experienceChallenges Limited distribution payments to Tribe/developer until later in project(e.g., year 6 for solar; year 11 for wind) Still requires up-front capital contribution from developer Tribe(though could be as little as 1%) Developer must consult tax equity partner on major decisions24
PROJECT FINANCING STRUCTURES:SALE LEASEBACK25
Sale Leaseback StructureTax EquityPotential Tribal RoleSale Leaseback1) Developer sells project to tax-equity investor. Developerreceives: sale proceeds and cash from power purchaseagreement (PPA), less lease payments, O&M. Must purchaseasset from tax equity at end of lease.TaxEquityInvestor(Lessor)2) Tax equity leases projectto developer. Tax equityreceives: ITC, MACRS, andlease payments.Project Developer (Lessee) Sale leaseback can provide 100%financing from tax-equity investor. IRSPLR seems to indicate Tribe can bedeveloper/lessee; legal counselrecommended.Utility/Off-takerRent( )SiteAccessResourceOwner26
Cash Flow Example: Sale Leaseback, No erationCash Flows and Tax BenefitsDevelopmentCostsTax-Equity InvestorDeveloperCapitalInvestmentDeveloper can purchase project at fair market valueYear -7 -6 -5 -4 -3 -2 -1012345678910 11 12 13 14 15 16 17 18 19 2027
Sale Leaseback: Advantages and ChallengesAdvantages Tax equity can provide 100% of the capital up front Developer gets large cash distribution upon sale of project Familiar and utilized structure among solar communityChallenges Most costly for Tribe/developer to acquire long-term ownership of project(large cash infusion year 10) Tribe/developer operates the project Requires largest equity contribution from tax-equity investor (could limitinvestment) Limited participation to developer/Tribe until buyout of project ( year 10) Not possible for PTC-based project (e.g., wind)28
PROJECT FINANCING STRUCTURES:INVERTED LEASE/LEASE PASS-THROUGH29
Inverted Lease/Lease Pass-Through StructureInverted LeaseTax EquityPotential Tribal Role1) Tax-equity investor buys project, then sells project todeveloper. Tax equity receives: sale proceeds, ITC passthrough, cash from PPA (less lease payments, O&M).ProjectDeveloper(Lessor)TaxEquityInvestor2) Developer leases project to taxequity. Developer receives: leasepayments; retains MACRS. Developerowns asset in full at expiration of lease.In the inverted lease, ITC is passed throughto the tax-equity investor, allowing developerto retain ownership and some tax benefits(MACRS). IRS PLR seems to indicate Tribemay be developer; legal opinion required.(Lessee) Utility/Off-takerRent( )SiteAccessResourceOwner30
Cash Flow Example: InvertedLease/Lease Pass-Through, No erationCash Flows and Tax Benefits*DevelopmentCostsProject cash flows revert to developer in yr 6CapitalInvestmentTax-Equity InvestorDeveloper*The difference between structures isin the timing and magnitude of valuesYear -7 -6 -5 -4 -3 -2 -1012345678910 11 12 13 14 15 16 17 18 19 2031
Inverted Lease/Lease Pass-Through:Advantages and ChallengesAdvantages Tribe/developer maintains controlling interest and ownership in project Cash flows to Tribe/developer from beginning Limits risk to tax-equity investor, possibly increasing availability of investmentChallenges Most complicated of all three tax-equity structures Developer must contribute significantly to up-front capital investment Not possible for PTC-based project (e.g., wind) Limited upside for tax-equity investor32
SUMMARY33
Project Financing Structures: cteristicsCommon to wind/solar deals,two participants (tax-equityand developer).Typically 99%/1%allocations until flip(approx. 6 years),then 5%/95%8%–12%Sale LeasebackExtensive use in solar deals,at least two participants(1. tax-equity investor/lessor,2. developer/lessee)Developer sellscompleted project totax-equity, leases itback (10–15 years)10%–15%Inverted Lease/Lease Pass-ThroughMore complex and lesscommon, at least twoparticipants(1. tax-equity investor/lessee,2. developer/lessor)Project majority ownedby developer, leases toinvestor, (7–10 years)10%–15%Partnership Flip34
Financing Structures and Tribal ImplicationsDirectOwnershipPartnership FlipSale LeasebackInvertedLease/LeasePass-ThroughUser selffinancessystem andconsumespower on-siteInvestor canprovide up to 99%financing. Debtcan also be partof capital stack.Investor provides 100%financing. Debt canalso be part of capitalstack, commonly atdeveloper level.Investor providespartial financing.Debt is a commonpart of capitalstack. ,potentially 0 – OwnershipUser-ownedCo-ownership bydeveloper andinvestorDeveloper has optionto purchase assets atlease termAssets revert todeveloper at thelease termTax CreditNAPTC or ITCITCITCFinancingUp-front TribalCapital Req.InvestorPreferenceCertain firms have preferences for/familiarity with particular structures and/ortechnologies. Project specifics may also dictate financial structure selected.35
These courses were designed in coordination with Tracey LeBeau and PilarThomas of the DOE Office of Indian Energy by a team including Dan Beckley,Stacy Buchanan, Karlynn Cory, Jason Coughlin, Elizabeth Doris, MikeElchinger, Sara Farrar-Nagy, Bill Gillies, Travis Lowder, Anirudh Paduru, PaulSchwabe, Bob Springer, Blaise Stoltenberg, and Rachel Sullivan of theNational Renewable Energy Laboratory; Joe Cruz and Matt Ferguson of CohnReznick; Paul Dearhouse of Dearhouse Consulting Group; and CarolynStewart of Red Mountain Energy Partners.Questions/comments: indianenergy@hq.doe.govFor more information: www.energy.gov/indianenergyAdditional courses: www.nterlearning.orgTHANK YOU36
INFORMATION ON THE CURRICULUMPROGRAM AND OFFERINGS37
Curriculum Structure and OfferingsFoundationalCoursesLeadership andProfessional CoursesProvide an overview offoundational informationon renewable energytechnologies, strategicenergy planning, andgrid basicsCover the componentsof the projectdevelopment processand existing projectfinancing structures38
Foundational CoursesEnergy Basics Assessing EnergyNeeds and ResourcesRenewable EnergyTechnology Options Biomass Electricity Grid Basics Building Heat & Hot Water Strategic EnergyPlanning Geothermal Hydroelectric Solar WindAll courses are presented as 40-minute webinars online at: www.nterlearning.org39
Leadership and Professional CoursesEssentialsProjectDevelopmentand FinancingEssentials Keyconcepts Processoverview rojectFinanceProjectScale Concepts Concepts Facility– Risk and uncertainty– Tribal project roles– Policies andrenewable energy(federal & state) Process– Project scaledecision factors– Understanding theenergy market– Project team– Procurement- LCOE- Businessstructures- Tax-equitypartnerships Community Commercial Process andStructures– Direct ownership– Flip– Leaseback– Inverted lease40
13 . INTRODUCTION: PROJECT FINANCING STRUCTURES . 14 . Capital Structure with Tax Equity . 15 . Partnership Flip . . Inverted Lease . Tax-Equity Investment Structures . Potential Capital Financing Sources . Tax Equity . Debt . Cash Equity . Other . Project Company . Project Company/ Pass-Through Entity . Corporations . Tax Equity : March 8 .
The EU's renewable energy policy framework 5 - 9 Renewable energy support schemes 10 - 12 Renewable energy within the EU's rural development policy framework 13 - 17 Audit scope and approach 18 - 22 Observations 23 - 82 The EU's renewable energy policy framework could better exploit the opportunities of renewable energy deployment in .
renewable resources (renewable energy) and sets the FiT rate. The DLs will pay for renewable energy supplied to the electricity grid for a specific duration. By guaranteeing access to the grid and setting a favourable price per unit of renewable energy, the FiT mechanism would ensure that renewable energy becomes a viable and sound long-term
4.0 Renewable Energy Market 4.1 Policy Framework for renewable energy 4.1.1 Policies and Strategies for Renewable Energy Promotion 4.1.2 Main actors 4.1.3 Regulatory Framework 4.1.4 Licensing Procedures for Renewable Energy 4.1.5 Feed-in-Tariff 4.2 Business Opportunities and Potentials of Renewable Energy Sources 4.2.1 Bioenergy 4.2.2 Solar energy
1. FOUNDATIONS OF RENEWABLE ENERGY TARGETS 14 1.1 Overview of renewable energy targets at the global level 14 1.2. Brief history of renewable energy targets 17 1.3. Key aspects and definition of renewable energy targets 22 1.4. Theoretical foundations of targets 28 2. MAIN FUNCTIONS AND BASIS FOR RENEWABLE ENERGY TARGETS 31 2.1.
renewable energy sources. The Government has set a very ambitious target of adding 175 GW of renewable energy by 20226. While this is a recent policy announcement, it would be pertinent to highlight the progress of renewable energy sources over the last two decades. The following graph depicts the journey of renewable energy
students with broader background in renewable energy development and future trend. The second is to provide students with technical tools to analyze and design renewable energy systems. To satisfy these purposes the following topics were covered: x Renewable energy development around the world x Renewable energy development in the USA
NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC. Renewable Energy Certificate (REC) Tracking Systems: Costs & Verification Issues . Jenny Heeter, Renewable Energy Analyst . National Renewable Energy Laboratory . October 11, 2013
Jul 18, 2012 · Renewable Energy Certificates: Renewable energy can be sold as two distinct products: the actual energy produced from a renewable energy project and the “renewable energy certificate” (REC) which puts a value on the environmental benefits, such as reduced emissions, from the project. To meet Federal
