Small utility steps into the breach -- New investor found

Investors motivated for tax reasons to invest in wind projects may be running scarce, but wind farm developer Cannon Power Corp is demonstrating that buyers can still be found. Once built, Cannon's 137 MW Windy Point project in Washington is to be bought by small public utility Turlock California Irrigation District, required by law to obtain a rising proportion of its electricity from renewable sources.

Cannon had expected to sell the majority of the project to a passive equity partner looking to take advantage of wind's federal production tax credit (PTC) to reduce its tax liabilities. "It was going to be a tax investor kind of a deal, a pre-paid structure, but the tax equity investor was one of the usual suspects that are no longer with us," says Cannon's Gary Hardke.

Turlock, as a non-profit entity with no state or federal tax liability, has no use for the PTC. The utility, however, has other plans, says Hardke. "They have a very high credit rating as a public utility and they can get tax exempt financing in the form of public bonds that are at much lower rates," he says. "Tax exempt financing allows them to buy the project. It won't totally offset the PTC and depreciation but it reduces the gap."

The wind plant, made up of 20 Repower turbines and 42 Siemens units, is located in Klickitat County, Washington, along the Columbia River. Completion was expected by the end of March. Turlock has until mid-year to finalise financing.

The ownership approach appears to be gaining currency. "That kind of mechanism is something that we're starting to see in California," says Hardke. Several municipalities and groups of municipalities, in particular, are well situated since many of them have either self-imposed or mandated renewables targets. "They are seeing the same thing in the market that the rest of us do," says Hardke.

California's green energy law plays a key role. It requires utilities to meet a state renewables portfolio standard (RPS) for 20% green electricity by 2020. "They see the tax equity market is stalled out so if they are going to meet their own RPS requirements, they may have to find a way to buy these projects at completion and not rely on independent power producers to do the typical tax investor term-loan kind of structure."

The purchase of Windy Point will single-handedly achieve Turlock's green power ambitions for the near future by boosting the proportion of power it gets from renewable energy sources to 28%, putting it well ahead of a goal adopted by its board of reaching 20% by 2017.