Rates of Return and the Depth of the Tax Equity Market
“Tax equity after-tax internal rate of returns are 8 to 9%.”
Tristan Grimbert, CEO of EDF Renewables
“The pricing of tax equity is not based on risk. Tax equity investors are getting as much as they can given the shallow market.”
Martín Múgica, President & CEO of Iberdrola Renewables, LLC
“There are 18 tax equity investors that have either invested or committed to invest. We’re talking with six new investors.”
John Eber, Managing Director Energy Investments, J.P. Morgan
“The short term extension of the PTC keeps investors out of the tax equity industry because it takes a lot of work to invest in tax equity and institutions don’t want to bother for just a year or two.”
John Eber, Managing Director Energy Investments, J.P. Morgan
“Everything is coming to market at once. There are not enough due diligence experts and engineers to handle it all.”
John Eber, Managing Director Energy Investments, J.P. Morgan
Deal Structuring
“Tax equity is three times as expensive as debt but taking similar risks as debt, so we value tax equity structures that enable you to fill out the rest of the capital stack with as much debt as possible”
Pete Keel, Vice President, Strategic & Financial Planning, First Wind
“Historically, ninety percent of PTC deals were unlevered.”
John Eber, Managing Director Energy Investments, J.P. Morgan
“It is easier to close an electricity pricing hedge than a power purchase agreement (PPA) with a utility, because the hedge is not subject to a request for proposal (RFP) process. Also, a hedge only locks in the price of 70 to 75% of capacity which gives the project upside for the remaining portion.”
Borja Negro, CEO of Gamesa North America
“In a hedge deal, use P95 production assumptions and plan for the tax equity investor to ‘flip” in ten or eleven years. Work backwards to determine the size of the tax equity investment.”
John Eber, Managing Director Energy Investments, J.P. Morgan
“The hedge market is just temporary because of the constraints of the PTC extension to start construction in 2013.”
John Eber, Managing Director Energy Investments, J.P. Morgan
“Hedge deals are viewed as riskier than PPA deals by a big part of the tax equity market, but JP Morgan will do them.”
John Eber, Managing Director Energy Investments, J.P. Morgan
Forecasts for Growth of Wind in the United States
“The PTC “start of construction” rules are a tremendous for the industry. They are equivalent to a three-year window for projects – 2013, 2014 and 2015.”
Tristan Grimbert, CEO of EDF Renewables
“The IRS will be suspicious of 2016 projects.”
John Eber, Managing Director Energy Investments, J.P. Morgan
“This year will be bad in terms of the gigawatts of new wind projects constructed in the United States, but next year will be a boom.”
Tristan Grimbert, CEO of EDF Renewables
“There will be six to eight gigawatts of wind constructed in the United States in 2014. 2015 will be slightly less.”
Gabriel Alonso, CEO of EDP Renewables North America
“There will be years in which only two gigawatts of wind are added and years in which ten gigawatts of wind are added.”
Borja Negro, CEO of Gamesa North America
Improvements in Efficiency
“Gamesa turbines are the same price as eight years ago but produce 30 percent more power.”
Borja Negro, CEO of Gamesa North America
Energy Policy Options
“The best choices to bring down the cost of capital for wind projects are in the first instance a national RPS or carbon tax and second making PTCs transferable or refundable.”
Tristan Grimbert, CEO of EDF Renewables
“The largest long-term benefit of state renewable portfolio standards (RPS) is that projects receive long-term contracts. The Illinois RPS is not effective because it does not do that.”
Gabriel Alonso, CEO of EDP Renewables North America
