Learn more at: http://www.principalsolarinstitute.org/webinar/566
How do you pay for large-scale solar power plants when you need millions to start building, but receive payout over decades? Serious solar energy finance professionals will want to hear structured asset finance and valuation expert Ken Kramer present and answer questions about renewable energy project financing concepts applicable to utility scale solar projects, with a focus on US projects utilizing tax-oriented financing structures.
Ken will describe the mechanics and market participants involved in non-recourse project financing. He will also review currently available US Federal tax benefits for renewable energy projects and tax-efficient transaction structures that have evolved to utilize those benefits. Valuation issues associated with these structures will also be covered.
Students at Cornell and Columbia have recently had the opportunity to hear Ken lecture on this topic. This FREE webinar is your chance to do the same, plus attend the LIVE webinar to find out how to employ these concepts in your 2013 business strategy when Ken answers your questions during a LIVE Q & A segment following his presentation.
2. Principal Solar Institute
Solar Project Finance:
Turning Sunlight Into Green
Ken Kramer
Managing Director and Co-Founder, Rushton
Atlantic, LLC
Ken Kramer has 30 years’ experience in structured asset finance, in
valuation consulting, banking and corporate treasury. He is a co-founder
and Managing Director of Rushton Atlantic, LLC, a boutique valuation
advisory firm specializing in the energy, infrastructure, manufacturing
and transportation sectors. The firm provides specialized valuation
services supporting structured and project financings, acquisition due
diligence, insurance placement, financial reporting and tax compliance.
3. What is Project Finance?
Financing of a project based solely on its risks and
future cash flows, with limited or no recourse to a
corporate obligor
Project finance was developed to finance large
infrastructure projects that might be too large or
risky for an individual investor’s corporate balance
sheet
Risks are mitigated through contracts and
guarantees, ranging from design and construction
through operation and sale of project output
4. What Makes Project Finance Feasible?
Certainty of sale of project output to guarantee
a revenue stream and operating margins
– Long-term power purchase agreement
– Long-term operating agreement (toll roads)
– Capacity purchase agreement (transmission lines)
– Production sharing agreement (oil fields)
– Certainty of merchant sales (some windfarms)
5. Sponsor Considerations
Developers/equity investors benefit from off-
balance sheet financing, maximize equity
returns, and monetize tax financing
opportunities
Expensive & time consuming to document and
close
Operating restrictions, including cash sweeps
6. Lender Considerations
Critical mass? $50-100MM minimum
Receipt of revenue contractually enforceable
against creditworthy buyer?
Will physical assets secure lender repayment?
Technology risk?
Reputable contractors?
Permits in place?
7. Project Agreements
With sponsor
– O&M - operating & maintenance agreement
– ASA - administrative services agreement
– TLA - technology license agreement
With outside parties
– EPC - engineering, procurement and construction
– PPA - power purchase agreement
– Renewable energy credit agreement
– Other offtake agreements (e.g. steam, CO2, other byproducts)
– Site lease agreement
– Interconnection agreement
– Feedstock supply agreements
– Hedging agreements
8. Contract Issues
PPA
– Generally required with sufficient term and revenues to fully amortize
debt or lease obligations
– Utility scale projects may negotiate take or pay contracts
– Wind projects may be financeable on merchant basis, with wind
histories, etc.
EPC
– Necessary if sponsor has not financed construction internally
– Corporate guarantees or performance bonds required for construction
(schedule and budget)
– “Full wrap” coverage preferred, including maintenance guarantees
– Available leverage is function of strength of EPC guarantee
13. Debt Options
Syndicated & club loans
– Construction loans
– Term loans
– Working capital loans
144A Private placements
USDA Sec. 9007 REAP loans & guarantees (to
$25MM)
15. Top Renewable Energy Project
Finance Arrangers for 2011
1. Federal Financing Bank $10,135
2. BNDES $4,229
3. Bank of America $2,500
4. Mitsubishi UFJ Financial $2,309
5. Banco Santander $2,037
6. KFW $1,889
7. Nordic Investment Bank $1,889
8. UniCredit $1,167
9. European Investment Bank $1,046
10. BBVA $1,006
16. Top Renewable Energy Project
Sponsors for 2011
1. NRG Energy $6,463
2. NextEra Energy $3,367
3. Abengoa $3,072
4. Acciona $2,105
5. Exelon Corp $1,359
6. General Electric $1,294
7. Terra Firma Capital Partners $1,110
8. DONG Energy $920
9. WindlandEnergieerzeugungs $881
10. Blackstone $881
17. Third Party Equity
What is the gap between sponsor equity and debt?
Active or passive investors?
Is project technology and sponsor management
attractive to potential equity investors?
Type and terms of equity investment
– Common vs. preferred
– Board seats, dividends, liquidation preference, etc.
– Anticipated liquidity event
18. Tax Benefits
ITC – 30% (or 10% for microturbines, CHP & certain
geothermal including heat pumps) of qualifying renewable
energy generation equipment
1603 cash grant in lieu of ITC – 30% or 10%, as above, for
facilities with construction started (or 5% spent) before
1/1/12 and placed in service before:
– 1/1/13 for “large” wind
– 1/1/14 for biomass, geothermal (30%), landfill gas,
MSW, hydro & marine/hydrokinetic
– 1/1/17 for solar, “small” wind, geothermal (10%), fuel
cells, microturbines, CHP, geothermal heat pumps
19. Tax Benefits – cont’d.
PTC – payments for 10 years of:
– 2.2 cents/kwh for wind turbines under construction before 1/1/14
– 2.2 ckwh (for closed-loop biomass, geothermal, & pre-2006 solar) or
1.1 ckwh for open-loop biomass, small irrigation, MSW, qualified hydro
& marine/hydrokinetic) placed in service before 1/1/14
Depreciation – 5 year MACRS, on basis reduced by one half of
ITC or 1603 cash grant claimed, with bonus depreciation of
– 100% for assets placed in service before 1/1/12, and
– 50% for assets placed in service before 1/1/14
20. Tax Structured Financing Options
More efficient use of tax benefits
Availability of step-up in basis
Structural alternatives
– Sale/leaseback
– Partnership flip
– Pass through lease
21. Sale/Leaseback
100% financing
Can monetize ITC only
Must be structured as “true” lease per IRS guidelines
Lease term approximates term of PPA, which is
typically pledged as collateral
22. Partnership Flip
Partial project financing
Can monetize both PTC and ITC
May or may not be leveraged
Disproportionate allocation of cash flows and tax benefits
between developer and tax equity investor
Developer has option to repurchase facility after “flip date” –
the point at which investor has realized his return of and on
investment
23. Inverted Lease
Developer leases to tax equity investor, who sells power to
ultimate user
Lease rentals may be prepaid
Beneficial ownership automatically reverts to developer
Enables investor to claim ITC (but not PTC) while developer
retains depreciation
24. Top Tax Equity Investors for 2011
Bank of America MetLife
J. P. Morgan PNC
GE Capital PG&E
Union Bank Wells Fargo
Citi Northern Trust
Credit Suisse Key
Morgan Stanley U.S. Bank
Google
25. Questions and Discussion
Please enter your questions in the chat
window.
Ken Kramer
Managing Director
Rushton Atlantic, LLC
845 Third Avenue – 6th floor
New York, NY 10022
(646) 290 - 5069
ken.kramer@rushtonatlantic.com
Hinweis der Redaktion
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