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Finding finance in a fragile market -- Shoring up utility credibility

A proposal for a monthly charge on electricity bills in Nevada to underwrite renewables development has been put forward by the state's major utility, financially strapped Sierra Pacific Resources, with the backing of state governor Kenny Guinn, wind project developers and the Nevada Public Utilities Commission (PUC). The aim of the Temporary Renewable Energy Development (TRED) proposal is for revenues to flow into a trust fund separate from utility-controlled accounts to reassure financiers that Sierra can pay for any wind power produced.

Sierra, which owns the Sierra Pacific and Nevada Power utilities, is still reeling from the aftermath of high market power costs from the 2001-02 West Coast energy crisis, when it had contracts with Enron power traders. With fears that its poor financial condition could result in it defaulting on its bills, including payment for wind power, project developers are finding it extremely difficult to get the financing they need to move ahead.

Sierra signed its first round of six contracts for renewables power in December 2002, including deals for electricity from two wind projects, but due to its weak financial state wind developers have been unable to get the financing they need to move ahead on projects. Earlier this year, the utility's financial woes caused Walt Hornaday of Texas-based Cielo Wind Power, to withdraw his 80 MW Desert Queen Limited Partnership from the fray (Windpower Monthly, May 2004).

Meantime, Sierra is already defaulting on its green power mandate. In 2001, Nevada passed a law requiring Sierra to increase its renewables supply by 2% every other year until it reaches 15% of retail sales by 2013. Sierra has had to ask the Nevada Public Utilities Commission to forgive it for not yet meeting the first milestone -- obtaining 5% of its energy from renewable resources by 2003-2004.

Self financing

Tim Carlson, of Las Vegas-based Carlson & Associates, who is developing the 50 MW Ely Wind Project in the state, says he is having to spend $4-5 million of his own money to finish development because financing is unavailable for the project as long as Sierra is financially strapped. He is working with Richard Burdette, Guinn's energy advisor, SolarGenix Energy, which is developing a $150 million solar project in the state, and the PUC to push TRED through state hurdles.

"This would allow renewables to be financed in the state," Carlson says. "It won't prevent bankruptcy, but it segregates the funds into an account to pay developers and gives financiers a better feeling that their contracts are better protected."

Greg Jaunich of Navitas Energy, a Minnesota-based developer, says his company is familiar with the difficulties of trying to procure financing when working with a financially unstable utility after his experience with Northwestern Energy in Montana (Windpower Monthly, March 2004). Utilities can keep issuing requests for proposals, he says, "but until they're a solvent company, nobody will spend $50 to $60 million when there's not a creditworthy offtaker."

Navitas is developing the 80 MW Getchell Wind Farm in Nevada. Jaunich declines to comment on the project and says he has yet to obtain a contract. But he says TRED could work in Nevada and other states with similar financing difficulties, but only if the money collected from bills is put in a trust which is entirely separate from the utility, and if it is long term. "Anything less than that increases the risk for investors," he adds.

Carlson says the TRED proposal still has a couple of hurdles to jump. The first is PUC approval, but he also is seeking a permanent solution that would establish the TRED in state law so that it cannot be rescinded and would allow for long term contracts. "That's so the financing can't be disrupted for 20 years into the future," Carlson says.

He expects the TRED will be ready by June 2005 and that he can begin to put turbines in the ground by early 2006. Until then, Carlson, who also has several other projects in early development, says he will be spending his own dollars on the development work needed to move the projects forward.

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