#PTC Extension: Scarcity of Utility-Scale PPAs a Big Challenge for Wind Energy in 2013

In the wake of the extension of the production tax credit, my colleague Ed Einowski has analyzed a key challenge – the relative scarcity of available utility-scale power purchase agreement RFPs. Having a PUC-approved PPA in place is generally a prerequisite for securing financing for utility-scale wind projects. Here’s what he has to say:

The extension of the production tax credit (PTC) allows the wind energy industry to move forward with projects in 2013. But the last few years – especially 2012 – have seen relatively few utility-scale wind power purchase agreements executed. Without the assured revenue source of a power purchase agreement (PPA), wind projects will generally find third-party financing – whether debt, tax equity or cash equity – unavailable. And few developers – even those with the financial resources to do so – will likely be willing to risk proceeding with project construction in the absence of a financeable PPA. As a consequence, for most developers the PTC extension presents the immediate challenge of securing a financeable PPA to enable the PTCs to be secured. Given the time it generally takes to negotiate and finalize a utility-scale wind PPA as well as pursue other key items such as turbine supply agreements and engineering, procurement and construction contracts, it will be necessary to move expeditiously.

For a more detailed discussion of the issues involved, read the full article.
 

Only the Strong Survive: the post PTC Wind Market

My colleague Ed Einowski didn’t mince words in a recent article published by The Sindal Report. If the federal production tax credit (PTC) is allowed to expire at the end of this year, there will be a dramatic drop-off in wind installation starting in 2013. And these diminished opportunities will add up to significant changes for the industry. Among Ed’s predictions for a post PTC environment:

  • Well-capitalized developers will be best suited to survive
  • ‘Develop and flip’ will no longer be a viable strategy
  • Growing focus on adding value to the end customer
  • Developers will need to deal with transmission issues, and
  • Traditional project financing will be the new financing paradigm

You can view an extended summary of Ed’s remarks on our firm’s website. It’s well worth the read.

Optimizing Tax Benefits in Financing Renewable Energy Projects

Federal tax benefits, such as the Section 1603 Grant, investment tax credits and production tax credits, continue to be an important driver in financing renewable energy projects.  Several of my colleagues will be discussing these tax benefits and other incentives related to project financing in a webinar hosted by Infocast on Wednesday, March 31, 2010 at 1:00 p.m. Eastern.  Here is full description of the topics that will be discussed, the speakers and a link to the Infocast website for registration:

The section 1603 grant program created by the American Recovery and Reinvestment Act of 2009 recently entered its second year. Section 1603 has transformed the renewable energy industry from one in the doldrums to an industry revitalized. But what does the future hold for section 1603 and will recent legislative efforts to limit the grant program create a new uncertainty in renewable energy financing?

Unfortunately, section 1603 is set to expire at the end of 2010, except for projects that have commenced construction. Recently, the prospects for extending section 1603 were dimmed when Senator Charles E. Schumer (N.Y.), and three other Democratic senators, sponsored a bill that would place limitations on receipt of the grant. Developers, lenders, investors and their counsel all need to know whether and how they can fit under section 1603 and, if they can, how to optimize their deal structures, including the interface between the section 1603 grant and the Department of Energy Loan Guarantee Programs and any related NEPA compliance issues. Those who, for whatever reason, cannot qualify for section 1603 need to understand what comes next: PTCs, ITCs, or maybe some variation on 1603, and how those transactions should be designed.

Please join Infocast and Stoel Rives for a 90-minute webinar and panel discussion on project financing of renewable energy projects to maximize the benefit of tax and other incentives that may be available. Stoel Rives is a Chambers-rated leader in renewable energy law.

Moderator:

Edward Einowski, Partner, STOEL RIVES LLP

Panelists:

Erica Egan, Senior Vice President, Corporate Finance, HELABA
LANDESBANK HESSEN-THURINGEN

Gregory Jenner, Partner, STOEL RIVES LLP

Kevin Pearson, Partner, STOEL RIVES LLP

Gary Barnum, Partner, STOEL RIVES LLP

Registration:    http://www.infocastinc.com/index.php/conference/287

On the Senate Side, Alternatives to the House's Proposed Renewable Energy Incentives

On Friday, January 23, the Chairman of the Senate Finance Committee released his version of the economic stimulus bill.  Like its House counterpart (H.R. 598), the proposal by Chairman Max Baucus ("Chairman’s Mark") is called the American Recovery and Reinvestment Tax Act of 2009.  The Chairman’s Mark is scheduled to be considered in the Finance Committee on Tuesday, January 27.

As with H.R. 598, the Chairman's Mark would extend the production tax credit ("PTC") sunset date, permit taxpayers to elect to claim the investment tax credit ("ITC") in lieu of the PTC for certain projects, and extend bonus depreciation through 2009.  Importantly, however, the Chairman’s Mark does not include the provision in the House bill that would enable taxpayers to receive cash grants in lieu of the ITC for certain projects.  Without this grant provision, questions have been raised as to whether the Chairman's proposal would accomplish the legislative purpose of promoting investment in renewable energy development.  Other provisions of note in the Chairman's Mark are modifications to the general business credit and a new 30% credit for investment in certain property used in a "qualified advanced energy manufacturing project."

Click here for a detailed summary of the Chairman's Mark.  To view our recent Energy Law Alert on the House bill, click here.

House Bill Could Boost Incentives for Renewable Energy Projects

As part of an $825 billion stimulus plan to help revitalize the economy, the American Recovery and Reinvestment Tax Act of 2009 (H.R. 598) was recently introduced in the House of Representatives. The Bill aims to shore up tax incentives and offer new grants that would facilitate the development of renewable energy projects. Highlights of the proposed legislation include an extension of the production tax credit (“PTC”) sunset date, an election between the PTC and the investment tax credit, project grants in lieu of tax credits for certain projects, and an extension of bonus depreciation through 2009.

Check out our recent client alert for more information on HR 598 and its implications for project financing. The House Ways and Means Committee began its markup of the Bill on Thursday, January 22. We will report further developments as the Bill progresses. If you’d like to receive Stoel Rives Energy Law Alerts, click here.