Business Models

Stimulus Incentives Benefit Community Wind

A new report from Lawrence Berkeley National Laboratory reveals how the 30% investment tax credit (ITC) and cash grant equivalent have increased benefits for the development of Community Wind projects. “Revealing the Hidden Value that the Federal Investment Tax Credit and Treasury Cash Grant Provide To Community Wind Projects” analyzes the impact of new federal policies for wind farm investment incentives introduced this year as part of the U.S. economic stimulus program.

Historically, the production tax credit (PTC) has been the primary incentive for wind farm development, but the PTC requires passive income that only certain equity investors can leverage. The ITC and cash grant equivalent now available to qualified projects have reshaped the financial landscape for renewable energy development by lowering the hurdles for investors to obtain tax credits as well as providing cash grant equivalents for upfront capital. In addition, the American Recovery and Reinvestment Act of 2009 included provisions that eliminated the ITC's anti-double-dipping (or "haircut") provision for subsidized energy financing.

“Many of these ancillary benefits circumvent barriers that have plagued community wind projects in the United States for years.”

-Mark Bolinger,
Lawrence Berkeley National Laboratory

Mark Bolinger, the report's author, argues that while the stimulus changes were intended for the wind energy markets in general, they have been a blessing in disguise for community wind project development in the United States.

“It stands to reason that community wind, which has had more difficulty using the PTC than has commercial wind, may benefit disproportionately from this newfound ability to choose among these federal incentives. This report confirms this hypothesis,” says Bolinger. “Just as important are a handful of ancillary benefits that accompany the 30% ITC and/or cash grant, but not the PTC. Many of these ancillary benefits—including relief from the alternative minimum tax, passive credit limitations, and certain PTC ‘haircuts’—circumvent barriers that have plagued community wind projects in the United States for years.”

The report compares two financing structures, the Strategic Investor Partnership Flip and the Cooperative LLC, finding that the “Strategic Investor Flip structure benefits significantly more from choosing the ITC over the PTC than it does from switching to the 30% cash grant. Meanwhile, the opposite is true for the Cooperative LLC structure, which does not benefit much from selecting the ITC over the PTC, but realizes a tremendous amount of value by choosing the 30% cash grant over the ITC.”

This report, “Revealing the Hidden Value that the Federal Investment Tax Credit and Treasury Cash Grant Provide To Community Wind Projects,” and others are available at the Electricity Markets and Policy Renewable Energy Publications section of the Lawrence Berkeley National Laboratory web site.

Lisa Daniels, Executive Director of Windustry, served as a draft reviewer for this report.

Introduction to Landowner Wind Energy Associations

Have you been approached by a wind developer? Are you interested in leasing your land for wind development but want to make sure you are getting a fair deal?

This Introduction to Landowner Wind Energy Associations (LWEA) provides an overview to this model of landowner participation. A landowner wind energy association bridges the gap between full ownership participation and simply leasing your land. This model allows landowners to come together and combine their resources, which provides greater negotiating power with the developer. The association model can also be used to provide financial benefits to all landowners in the association, not just those who host the turbines. Download the two-page handout to learn more.

Wind Project Financing Structures: A Review & Comparative Analysis

This report from Lawrence Berkley National Laboratory was released in September, 2007. The report, titled "Wind Project Financing Structures: A Review & Comparative Analysis," was authored by John Harper (Birch Tree Capital, LLC), Matt Karcher (Deacon Harbor Financial, L.P.), and Mark Bolinger (Lawrence Berkeley National Laboratory), and was funded by the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy, Wind & Hydropower Technologies Program.

The rapid expansion in the U.S. wind power industry over the past few years has required the mobilization of a tremendous amount of capital. In 2007 alone, for example, an estimated $6 billion will be invested in new wind projects in the U.S. To attract this kind of capital, the wind power sector has, in recent years, developed multiple financing structures to manage project risk and allocate Federal tax incentives to those entities that can use them most efficiently. These structures are the underlying focus of this report.

Specifically, the purpose of this report is three-fold: (1) to survey recent trends in the financing of utility-scale wind projects in the United States, (2) to describe in some detail the seven principal financing structures through which most utility-scale wind projects (excluding utility-owned projects) have been financed from 1999 to the present, and (3) to help understand the impact of these seven structures on the levelized cost of energy from wind power.

The seven structures -- which range from simple balance-sheet finance to several varieties of all-equity partnership "flip" structures to leveraged structures -- feature varying combinations of equity capital from project developers and third-party tax-oriented investors, and in some cases commercial debt. Their origins stem from variations in the financial capacity and business objectives of wind project developers, coupled with the investment risk tolerance and objectives of the tax-oriented investors and debt providers.

The full report (including an executive summary) can be downloaded from:
http://eetd.lbl.gov/ea/emp/reports/63434.pdf

In addition, a high-level PowerPoint summary of the document is available at:
http://eetd.lbl.gov/ea/emp/reports/63434-ppt.pdf

[Text of this item is adapted with minor changes from from a 09/2007 LBNL press release.]

Chapter 12: The Minnesota Flip


The Minnesota Flip business model was developed in response to a unique combination of federal incentives for wind development and state policies that encouraged development of community-owned wind projects. The structure has proven a successful model for landowners and equity investors interested in partnering in the development of wind projects. This partnership allows the equity investor to take advantage of federal tax credits, while providing local owners the economic benefits of ownership.

Ownership: 

Chapter 11: Choosing a Business Model


There are several options for structuring a community wind energy project. Business structure options should be evaluated based on their ability to deliver low-cost wind energy and local benefits, as well as on their profitability. In general terms, business arrangements are best when they:

Ownership: 

Business Structures

Let's assume you have established that you have a good wind resource on your property, and you decide to undertake a wind energy project. How will you do it? As with any business venture, there is more than one way to structure your involvement. Do you want to own a wind turbine by yourself, or join forces with a partner? Or do you want to sell or lease your land to someone else? The structure you choose for your wind energy business will depend on three main factors:

A Comparative Analysis of Community Wind Power Development Options in Oregon

A Comparative Analysis of Business Structures Suitable for Farmer-Owned Wind Power Projects in the United States (November 2004) was prepared for the Wind & Hydropower Technologies Program, U.S. Department of Energy, by Mark Bolinger and Ryan Wise.

For years, farmers in the United States have looked with envy on their European counterparts' ability to profitably farm the wind through ownership of distributed, utility-scale wind projects. Only within the past few years, however, has farmer- or community-owned wind power development become a reality in the United States. The primary hurdle to this type of development in the United States has been devising and implementing suitable business and legal structures that enable such projects to take advantage of tax-based federal incentives for wind power. This article discusses the limitations of such incentives in supporting farmer- or community-owned wind projects, describes four ownership structures that potentially overcome such limitations, and finally conducts comparative financial analysis on those four structures, using as an example a hypothetical 1.5 MW farmer-owned project located in the state of Oregon.

Read the Report

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