Wind Project Development and Finance Innovations As 2012 drew to a close and the US Congress peered over their

prover ial !"iscal cli""#$ wind project developers thro%gho%t the co%ntr& r%shed to commission projects e"ore the passing o" their own Decem er '1st deadline( )he p%sh was on( Fail%re wo%ld mean "or"eit%re o" *(022 per +Wh o" prod%ction# or similarl& advantageo%s 1,0' cash grants( )his was the latest crest in a oom- %st c&cle plag%ing the wind power ind%str& with %ncertaint& since its inception. the Prod%ction )a/ Credit 0P)C1( While Congress event%all& chose to e/tend the P)C thro%gh the end o" 201'# the deepl& divided od&2s inherent %ncertaint& has le"t man& ind%str& advocates wondering what happens ne/t( )he American Wind 3nerg& Association has rolled o%t plans "or a grad%al P)C phase4o%t in an e""ort to c%shion arrival at grid parit&( Still# man& see the to/ic political climate and its "iscal "oc%s as contrar& to an& "%rther renewal o" the P)C( )he& instead see+ other options to red%ce capital costs and drive mar+et trans"ormation in the wa+e o" the P)C( )his rie" paper e/amines three promising developments in Wind Project Finance incl%ding. 011 Investment 5ehicles 3/empt "rom Corporate 6evel )a/ation7 021 S&nthetic Power P%rchase Agreements with State Sponsored 8edging7 and 0'1 Federal and State 6eadership in Standards Development( 1( Investment 5ehicles 3/empt "rom Corporate 6evel )a/ation )his con"erence disc%sses two speci"ic vehicles "or circ%mventing the do% le ta/ation normall& associated with p% licl& traded entities. the 9aster 6imited Partnership 096P1 and the :eal 3state Investment )r%st 0:3I)1( Understanding the importance o" s%ch vehicles re;%ires a rie" primer on corporate ta/ation( 3ver& "or4pro"it %siness "aces either corporate ta/ation or pass thro%gh ta/ation( 9ost p% licl& traded corporations "ace "ederal ta/ation twice# once at the entit& level 0corporation1# and once at the dividend level 0stoc+holders1( Pass4thro%gh ta/ation is availa le "or most partnerships and allows an organi<ation2s pro"its-losses to pass thro%gh the corporation and instead "ace ta/ation onl& at the stoc+holder level( While pass4thro%gh entities provide 10420= savings on pro"its that el%de ta/ation at the corporate level# the& also "ace severe li;%idit& constraints eca%se their interests are not generall& p% licl& trada le( )he 96P and :3I) are %ni;%e vehicles within the ta/ code eca%se the& have the est o" oth worlds7 the& can e p% licl& traded on sec%rities e/changes while onl& "acing pass thro%gh ta/ation( Use o" s%ch str%ct%res has potential to increase li;%idit& and lower the capital cost "or "%t%re wind project developments( )he 96P is a ta/ code carve4o%t originall& designed to provide li;%idit& "or companies %ilding-operating "ossil "%el pipeline in"rastr%ct%re( )his str%ct%re evades entit& level ta/ation and its shares ma& e p% licl& traded on sec%rit& e/changes( While the 96P carve4o%t does not c%rrentl& incl%de renewa le projects# Congress has de ated several ills in "avor o" amending the code "or their incl%sion( In "act# the c%rrent

administration recentl& came o%t in "avor o" s%ch an amendment p% licl& thro%gh a statement o" its "ormer 3nerg& Secretar&# 9r( Stephen Ch%( Un"ort%natel& however# s%ch a str%ct%re "aces similar arriers to the P)C in that it wo%ld re;%ire an act o" Congress to incl%de renewa le "acilities within its de"inition( )he :3I) is a ta/ code carve4o%t designed to enco%rage capital li;%idit& within real propert& mar+ets( 6i+e the 96P# the :3I)2s str%ct%re evades entit& level ta/ation and its shares ma& e p% licl& traded on sec%rit& e/changes( Unli+e the 96P# the :3I) wo%ld not re;%ire an act o" Congress to e %sed in the renewa le sector( )he :3I) str%ct%re does have its own r%les however# which c%rrentl& disco%rages its %se "or electricit& generation( )he Internal :even%e Service co%ld provide a sa"e har or "or s%ch %se & allowing "or separation o" propert& assets "rom generation assets( In "act# it has provided similar sa"e har ors "or energ& e""icienc& e;%ipment via private letter r%lings# %t private letter r%lings ma& not e relied %pon as legal precedent( I" eno%gh private letter r%lings on the s% ject are re;%ested# the service is li+el& to iss%e a reven%e r%ling which co%ld e relied %pon as investment4grade precedent( 8owever# the Service has &et to iss%e a reven%e r%ling "or wind generation "acilit& :3I)s( 2( S&nthetic Power P%rchase Agreements and State Sponsored 8edging )his con"erence disc%sses how green an+s and other state sponsored "acilities ma& draw investment toward s&nthetic power p%rchase agreements( A power p%rchase agreement 0PPA1 is an agreement etween a %tilit& and a merchant generator-independent power prod%cer 0IPP1 to p%rchase a "i/ed amo%nt o" power "rom a "acilit& "or an e/tended term# t&picall& 20 &ears( S%ch an agreement is reasona le "or a %tilit& eca%se it allows them to hedge against to price o" spot mar+et electricit&# and advantageo%s to an IPP eca%se a g%aranteed stream o" "%nding ma+es a project m%ch easier to "inance( PPAs were pop%lar e"ore the move to restr%ct%re mar+ets and other constraints have led to their ne/t evol%tion# the s&nthetic PPA( )he s&nthetic PPA is a PPA that is pop%lar in restr%ct%red mar+ets where pricing is competitive and %tilities have less need "or long4term PPAs( )he s&nthetic PPA is "%ndamentall& similar to a PPA e/cept that its normall& limited to a shorter term and involves a third part& who hedges the developer2s ris+ o" low prices on the spot mar+et in e/change "or ret%rns when prices are high( >ne s%ggestion rela&ed in this con"erence is that a ?reen @an+s s%ch as Connectic%t2s Clean 3nerg& Finance Investment A%thorit&# or other state sponsored entit& s%ch as ABS3:DA co%ld %tili<e their "inancial strength to act as the third part& hedger and provide long term sta ilit& within these agreements( '( Federal and State 6eadership in Uni"orm Standards Development )his con"erence disc%sses how state and "ederal leadership co%ld lead to lower project costs thro%gh %ni"orm development standards( )wo e/amples o" this leadership relate to !ta+ings$ permits %nder the 3ndangered Species Act 03SA1# and reg%lations meant to avoid nim &ism( )he 3SA allows the government to categoricall& den& development-operation o" a "acilit& i" its operation res%lts in the !ta+ing$ o" an endangered species thro%gh its

%nintended death( 3ndangered ats# eagles# and other irds have res%lted in green e&eshades "or some an+ers d%e to worries that the government might re"%se a ta+ings permit at some point in the project( >ne s%ggestion "or state-"ederal leadership on this iss%e is that government ta+ing permits o%ght to that correspond with the li"ec&cle o" a wind "acilit&# and there"ore its investor2s timeline( Another s%ggestion rela&ed in this con"erence relates to nim &ism( :ecentl&# wind project developers have seen a growing opposition "rom residents who re"%se t%r ines !in their ac+&ard($ >ne s%ggestion "or state-"ederal leadership on this iss%e is to create %ni"orm standards "or o""sets and noise meas%rements so that residents and developers can etter j%dge the impacts o" a project( Comm%nit& wind is a highl& pop%lar means o" com ating nim &ism# %t the comple/it& and "ees associated t&pical ta/ e;%it& transactions normall& disco%rages comm%nit& scale development( )o this end# a tension e/ists etween local control and state leadership on wind citing processes that will re;%ire oth persistence and %nderstanding in p%rs%it o" %ni"orm standards and lower development costs( Innovative investment vehicles# state sponsored hedging# and development o" %ni"orm standards ma& soon help drive costs lower in wind project "inance2s "%t%re( For "%rther disc%ssion o" another innovative ta/ "ree project development option# see here(

'