The five year extension of the renewable energy production tax credits is a tremendous boon for an industry historically weakened by uncertainty. This legislation time frame enables the industry to innovate in ways that the start and stop of the past decade did not allow. Financing strategies have been based on ease of execution as opposed to creating the better mousetrap. Jupiter Renewables has developed something better—a patented risk management suite and a patent pending lease product for wind that the legislation extension provides the time to implement. The lease offers the highest advance rate, the highest returns and appeals to a wider range of tax-motivated investors who understand leasing.
As a lease, the developer or operating company can raise more capital and also increase the value of the asset. This is exciting because under the Jupiter Renewables lease structure, a typical transaction would require no more than a 15% investment as compared to other financings, which require three times this amount.
This innovative approach benefits all developers and operating companies. This will be a boon for developer’s using the Yield Company model, where the developer sells the wind farm once it is operational to an operating company referred to as a YieldCo. YieldCos are a new vehicle similar to a Master Limited Partnership. They have raised $13B in public equity over the past three years. YieldCos are looking for new solutions after the “summer shock,” which saw their share prices drop by more than 50% from their peak and led to the closing of public markets for new equity.
YieldCo’s can use the lease financing to develop three wind farms for every one wind farm using current techniques increasing Cash Available for Distribution and present values raising additional equity. According to Marathon Capital, a leading investment bank in the space, the latter metric is the most important one when evaluating a potential investment in a YieldCo.
The Jupiter structure removes uncertainty associated with investing in operational wind. The tax investor receives a high investment grade debt-like investment. The YieldCo investor receives a stream of low volatility income that is not subject to the uncertainty of the wind or equipment. A large chunk of YieldCo income is in the form of a high investment grade security.
Filed Under: Financing