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AWEA 2016: PTC attracts investment competition

UNITED STATES: The long-term phase-out of the production tax credit (PTC) is bringing more tax equity investors into the US market, leaving developers hopeful it will make what has always been their most expensive source of capital more affordable.

Tax equity investors are looking for an 8% return, said Invenergy CFO Jim Murphy
Tax equity investors are looking for an 8% return, said Invenergy CFO Jim Murphy

"Competition is really going to make a big difference," said Mike Storch, executive vice president at Enel North America. He was speaking during AWEA Windpower 2016's finance session.

Tax equity investors, a necessary part of the capital structure for US wind projects because of their ability
to use the $0.023/kWh PTC, are looking for an 8% return on their money, which is about double the
average cost of long-term bank debt.

While new entrants to the market are helping narrow that gap, for Invenergy LLC CFO Jim Murphy, it is not happening fast enough. "I'm a little frustrated tax equity has not come down more," he said during a finance panel at the American Wind Energy Association's recent annual conference in New Orleans.

Storch is also seeing more flexibility among tax equity investors. "Now there is much more opportunity to break away from the mould in terms of tailoring the deals to better meet your needs," he said.

"With the entry of so many new players, finally we really have a competitive environment for tax equity," Storch added.

US wind companies are diving back into new project development in order to position themselves to take advantage of the production tax credit before it expires, delegates at the finance session were told.

Development pipelines had "thinned out" by last year as companies cut back on making early-stage investments over concerns that the PTC would not be renewed, said Keith Martin, a partner at law firm Chadbourne and Parke.

With a five-year phase out now in place, however, they have to ramp-up to ensure they have enough projects to capture the incentive.

"We want to aggressively feed our development pipeline, said Tom Festle, chief financial officer at E.on Climate and Renewables North America.

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