Posts Tagged ‘windata’
North American Windpower: The Year Of The Yieldco: How Last Year’s Top Finance Trend Impacts The U.S. Wind Market « WINData LLC
- Published on Wednesday, 11 February 2015 09:43
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The calendar year 2014 saw a number of important developments in the U.S. wind industry – possibly some of the most important developments the industry has seen in a number of years. Below, we have focused on what we see as the most significant developments in capital raising, merger and acquisition activity, and the political arena.
Although the first publicly traded vehicles – commonly known as yieldcos in the renewable energy space – came to market in 2013, it was not until 2014 that the wind industry and other renewable energy industries came to appreciate the changes that yieldcos would offer in terms of reducing the cost of capital for projects.
There are a number of factors that go into determining the cost of producing a kilowatt-hour of wind energy: the cost, efficiency and reliability of equipment; the wind resource; transmission availability; development costs; and, of course, the cost of capital. Some could argue that, unlike power generated by burning fossil fuels, for wind power, where the “fuel” is free, the cost of capital is the most important of the cost factors.
Most projects will need capital from a number of sources: developer equity, which refers to the risk capital invested by the project owner (either from its own funds or through an arrangement with a private-equity source); debt (which can be bank or bond financing at either the project or the project company level); and tax equity.
The yieldcos offer the opportunity to replace some or all of the developer equity and debt with funds that require a relatively low return.
In a typical yieldco structure, a sponsor holding several completed wind projects or other power generating assets forms a separate company to hold these assets and then sells a minority ownership interest in the separate company to investors. The assets are typically selling power under long-term power purchase agreements and, therefore, offer a reasonably predictable annual production of income.
Yieldcos also offer growth potential. In a typical yieldco, only a portion of the revenues from the projects is distributed to the investors as a dividend. Most of the income is re-invested in other renewable energy projects so that the investment can grow. How much of the income from the projects is to be distributed, and how much can be devoted to growth, varies from yieldco to yieldco but is currently between 2% and 4% annually.
If the wind and other projects in the company are successful, this low-dividend requirement should leave quite a bit of money with which to acquire other projects.
To date, there are about five companies that might call themselves public yieldcos in the traditional sense of providing income and growth, although there are also several companies structured as real estate investment trusts that are similar in structure, but offer a slightly different balance between dividends and growth.
There are also a number of other companies that are rumored to be forming yieldcos or have publicly announced the intention to do so.
It may be going too far to say that the yieldco as a vehicle for raising capital for wind projects is transformative, but it is fair to suggest that it has been impactful: The industry saw the values of projects rise in 2014, even though there was very little change in interest rates or the underlying market in comparison to the prior year. Instead, we saw yieldcos competing for good projects, which, in turn, drove up values.
The “yieldco effect” on project values comes from a number of factors. The most obvious factor may be that yieldcos are able to raise capital at lower rates and, therefore, can be more competitive in purchasing wind farms when bidding against other buyers with a higher cost of capital. Just as important, however, is the fact that, in order to continue to grow, yieldcos must purchase additional projects.
As more and more yieldcos come to market and must find new high-quality projects, the demand for projects – even between and among yieldcos – will increase. This should result in driving returns down and prices up. In 2014, while this effect was felt, it did not predominate the market.
However, as more yieldcos enter the market, it would logically seem that competition for projects would continue to increase. A third, possibly less important factor is that yieldcos have the ability to purchase projects with stock rather than cash. Again, this should give yieldcos an edge when competing for some wind assets and further drive up values.
The so-called yieldco effect was prominent in the megadeal that saw TerraForm/SunEdison acquire First Wind. TerraForm is a SunEdison-sponsored yieldco that had its initial public offering in July 2014. TerraForm was used to acquire the operating assets of First Wind, assets that will offer the TerraForm shareholders an ongoing return. SunEdison simultaneously acquired the development business, which allows First Wind to continue its successful development platform and may provide TerraForm with additional projects in the future to help grow the TerraForm yieldco.
Politics as usual
The end of 2014 in Washington, D.C., saw two significant events for the wind industry: the Republican Party’s gaining the majority of both houses of Congress and what may possibly be the shortest extension ever of the federal production tax credit (PTC) for wind energy. It is still too early to know the impact on the industry of the Republican-controlled Congress.
The PTC extension, on the other hand, was an important event for a number of reasons. The most obvious, of course, was the extension of the period in which to “commence construction” until the end of 2014. This caused a number of companies that had hoped for a one-year extension to scramble to start construction over the last three weeks of the year. While the industry awaits guidance from the Internal Revenue Service (IRS), the industry is hopeful that this extension, in effect, extended the safe harbor completion date for all of the projects started in 2013 and 2014 until Dec. 31, 2016. Currently, the industry is waiting on the IRS as to whether that will happen.
Equally important is the manner in which the “commencement of construction” extension until the end of 2014 occurred.
As the Republicans and Democrats negotiated over the “extenders bill” toward the end of 2014, the wind industry’s proponents appeared to have struck a deal with the PTC opponents for a longer-term extension in exchange for an agreement not to seek a further extension when the longer term reached completion.
Unfortunately, the White House indicated that for unrelated reasons, it would not accept the bill that included that compromise. In the end, the wind industry ended up with the short-term PTC extension. However, the fact that a deal was tentatively reached may be an indication of things to come, so stay tuned in 2015.
Author’s note: Edward Zaelke is partner at law firm Akin Gump Strauss Hauer & Feld. He can be reached at (213) 254-1234 or ezaelke©akingump.com.
Choteau Acantha Article – Greenfield Wind Farm asks PSC for reconsideration « WINData LLC
- Published on Friday, 06 February 2015 21:40
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Choteau Acantha Article – Wind Farm asks PSC for reconsideration
Posted on February 6, 2015 Updated on February 6, 2015
February 4th 2015
A stalled project to put 15 industrial-sized wind turbines next to the six already up and running between Choteau and Fairfield will get reconsideration before the Montana Public Service Commission on Feb. 10.
Martin Wilde of Fairfield, working through the company, Greenfield Wind L.L.C., has been in a disagreement with NorthWestern Energy since April 2014 over what the utility will pay the wind developer for each megawatt-hour generated. The cost to integrate the intermittent energy into the region’s power grid is also unsettled.
In December, both parties agreed to a price to avoid further litigation, and filed a joint motion to approve a settlement agreement with the PSC, but the commissioners denied the settlement by a 3-2 vote.
Since that time, Brad Johnson replaced Bill Gallagher on the commission. Gallagher, Roger Koopman and Kirk Bushman voted against the settlement, while Travis Kavulla and Bob Lake voted for it.
Wilde called the denial “an 11th hour surprise reversal ruling” that “appeared to result from Gallagher placing his personal opinion and politics ahead of federal and state laws and ahead of the best interests of Montana rate payers.”
The PSC has invited the parties to present oral arguments for reconsideration at its Feb. 10 meeting in Helena.
At stake is whether Teton County will see a doubling of wind generation and an additional six-figure tax bill it will pay. Wilde’s Fairfield Wind six-turbine project that cost more than $25 million will start paying taxes next November.
Greenfield Wind attorney Ryan Shaffer of Missoula stated in his written motion to reconsider that the PSC’s decision was “unlawful, unjust and unreasonable” and constitutes an unlawful discrimination against “qualifying facilities,” namely, certain types of small power generation facilities, such as those from renewable-energy sources like the wind.
According to the Edison Electric Institute, the federal Public Utility Regulatory Policies Act of 1978 (PURPA) requires electric utilities to purchase energy offered by qualifying facilities. The goal is to support the development of small, onsite renewable generation and to promote diversity of a utility’s supply portfolio.
Montana has a renewable portfolio standard that requires public utilities to obtain a percentage of their retail electricity sales from eligible renewable resources. That percentage grew to 15 percent in 2015 after starting at 5 percent in 2008.
The PURPA also requires utilities to purchase electric energy from qualifying facilities at rates that are just and reasonable to consumers and that are equal to the utility’s avoided cost, defined as the incremental energy and capacity cost the utility would have incurred generating power from its own operating plant.
The state, through the PSC, governs the process to define those rates and has set a standard rate for certain qualifying facilities, but the Greenfield Wind project does not meet the criteria for that rate.
Wilde said that Greenfield has been seeking a long-term contract under PURPA with NorthWestern since 2010. But those efforts have been stymied, Wilde said, by the PSC’s rules prohibiting such long-term contracts for projects over a three-megawatt eligibility cap for the standard rate. Greenfield would generate 25 megawatts.
The rule used to be that the standard rate would apply to facilities generating 10 megawatts or less, and Wilde’s Fairfield Wind six-turbines qualified for the standard rate by generating 10 MW.
While the two parties were far apart at first in their proposed rates for the power, Shaffer said, “Greenfield recognized that with some concessions on Greenfield’s part, the gap between the rate proposed by NorthWestern and the rate proposed by Greenfield could be largely bridged.”
The negotiated rate is $50.49 per megawatt-hour if Greenfield pays NorthWestern for integration or $53.99 per MWh if Greenfield delivers a wind-integrated product. Another stipulation calls for Greenfield to delay the commercial online date until 2016.
Back in 2011, NorthWestern was paying a weighted average cost of $60.44 per MWh for qualifying facilities.
The PSC staff recommended that the commission approve the settlement but the commission voted otherwise.
Recent case law in the state determined that rates for purchases from qualifying facilities must be based on “current avoided least cost resource data,” Shaffer said. He argued that the market prices underlying the negotiated rate and the PSC staff’s benchmarking analysis come directly from NorthWestern’s 2013 least cost plan.
Shaffer alleges that the Federal Energy Regulatory Commission found that the PSC is failing to implement federal law for projects exactly like Greenfield. His argument is tied to the PSC’s recent approval of NorthWestern’s purchase of PPL’s hydroelectric dams. That process used the same market rates for evaluating whether the hydroelectric power system was a least-cost source. The commission voted for approval of the acquisition, Shaffer said.
He said the settlement rate “would save between $5.9 and $10.6 million over the life of the project compared to the two most reasonable alternative avoided-cost benchmarks.”
Wilde said, “Rejection of the unopposed settlement unreasonably deprives NorthWestern’s customers of the benefits of these favorable rates.”
He added that Greenfield’s rates would be significantly higher if Greenfield is forced to fully litigate its claim to a “legally enforceable obligation,” which is a “must-buy” provision of PURPA.
He explained that PSC’s own rules provide that a utility shall purchase available power from any qualifying facility at either the standard rate determined by the commission to be appropriate for the utility, or at a rate which is a negotiated term of the contract between the utility and the qualifying facility.
Feb 4 2015
Wind farms face major challenges across Montana | KPAX.com | Missoula, Montana
- Published on Thursday, 08 May 2014 03:02
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▶ Fairfield Wind Turbine #5 Blade Installation – YouTube » WINData LLC « WINData LLC
- Published on Sunday, 04 May 2014 16:57
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Installing a blade on the hub on Fairfield Wind turbine #5, a General Electric 1.7-100. Work conducted by Dick Anderson Construction of Great Falls.
▶ Fairfield Wind Turbine #1 Rotor Installation – YouTube
- Published on Friday, 18 April 2014 13:59
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Installing the rotor on Fairfield Wind turbine #1, a General Electric 1.7-100. Work conducted by Dick Anderson Construction of Great Falls.