A review of wind project financing structures in the USA

Abstract

The rapid pace of wind power development in the USA over the last decade has outstripped the ability of most project developers to provide adequate equity capital and to make efficient use of project-related tax benefits. In response, the sector has created novel project financing structures that feature varying combinations of equity capital from project developers and third-party tax-oriented investors and, in some cases, commercial debt. While their origins stem from variations in the financial capacity and business objectives of wind project developers, as well as the risk tolerances and objectives of equity and debt providers, each structure is, at its core, designed to manage project risk and to allocate federal tax incentives to those entities that can use them most efficiently. This paper surveys the six principal financing structures through which most new utility-scale wind projects (excluding utility-owned projects) in the USA have been financed from 1999 to the present. These structures include simple balance sheet finance, several varieties of all-equity special allocation partnership 'flip' structures and two leveraged structures. In addition to describing each structure's mechanics, the paper also discusses its rationale for use, the types of investors that find it appealing and why, and its relative frequency of use in the market. The paper concludes with a generalized summary of how a developer might choose one structure over another. copy; 2008 US Government Work.