The expiration of the US Treasury
Department’s 1603 programme
last year has complicated renewable energy companies’ abilities to cash in on
tax equities as a source of project finance and prompted a search for new
financing tools.
Renewable energy projects are largely
financed by companies wanting returns on investment at favourable tax rates.
The 1603 programme enabled renewable energy
companies to receive a grant for unused construction-related tax credits. An investment
tax credit for renewable energy companies remains until 2016, but only
taxpaying investors qualify.
Michael Whalen, CFO at SolarReserve, told IFLR there continued to be concern and
frustration on the complexity of structuring projects to tap into the providers
of tax capacity. “Most power projects
in the US are frequently developed and initially owned by parties who may not
be current tax payers,” he said.
That leaves partnerships and leveraged
leases as the tax efficient structures available for solar energy projects,
Whalen said.
Data presented by John Eber, managing
director of energy investments at JP Morgan, during a Renewable
Energy Finance Forum panel discussion earlier this month, showed inverted
leases were the most popular financing structure followed by investor leases
and leveraged partnerships.
Tax equities remain but it is not as easy
to take advantage of them with 1603 now a memory. A combination of bank loans
and bond sales could help the transition. The need for more capital markets
driven financing came up again and again during the discussion on June 20.
Whalen said it would be presumptuous to say
bank lenders are completely phasing out. “I think bank lenders still see
themselves as the principal resource in construction financing, but not in
long-term financing,” he said.
Thomas Emmons, managing director of
Rabobank, said one popular option for the financing of these types of projects
was to take out a ten-year bank loan and then refinance the loan or issue bonds
to institutional buyers.