Tuesday, January 21, 2014 5:44 PM ET
Ample debt, tax equity available for wind, solar projects, lenders say
By Michael Copley
Some of the country’s biggest financiers of renewable energy say there is ample debt and equity in the market for qualifying projects.
In 2013, about 25 tax-equity investors completed an estimated $6.5 billion in deals with wind and solar project developers, according to John Eber, managing director of energy investments at J.P. Morgan & Co. Inc., a subsidiary of JPMorgan Chase & Co., and Keith Martin, a partner at the law firm Chadbourne & Parke LLP. During the same period, between 50 and 60 commercial banks committed roughly $29 billion in debt for project finance, said Thomas Emmons, managing director of Rabobank Group’s renewable energy finance Americas division.
Those numbers appear to be trending upward, at least on the equity side. Tax-equity lending increased by about $1 billion in 2013, and Eber forecast “a sizeable pipeline” of wind and solar projects seeking equity lending from a growing number of investors in 2014.
On the debt side, project finance rebounded after falling to between $24 billion and $25 billion in 2012 from $40 billion in 2011, Emmons said. However, financing for oil, gas and conventional power projects appears to have been up in 2013, while investment in renewables was flat or down slightly, Emmons said during a Jan. 21 webinar hosted by Chadbourne & Parke.
Still, about 10 new commercial banks entered the project debt space in 2013, and more are expected in 2014, including regional U.S. banks, smaller banks in Canada and some in Northern Europe, Emmons said.
Tax equity was the subject of considerable debate within the U.S. solar industry in 2013. Some industry advocates, such as Jigar Shah, the founder and former CEO of SunEdison LLC, have argued that tax incentives like the investment tax credit drive up the cost of capital by limiting the pool of potential investors.
Others, though, have hesitated to turn their backs on the ITC, saying the subsidy is cumbersome but workable and a decent tool to help level the energy playing field.
In 2013, roughly 20 tax-equity investors completed 27 solar deals totaling nearly 1,800 MW, Eber said. According to SNL data, 4,114 MW of solar are under construction, with 2,234 MW expected in service in 2014 and 1,561 MW expected in service in 2015.
Meanwhile, 13 tax-equity lenders completed 21 wind deals totaling more than 3,000 MW, Eber said. There are 5,727 MW of wind projects under construction, according to SNL data, with 3,024 MW expected in service in 2014 and 1,759 MW expected in service by 2015.
“Let’s just say we see a sizeable pipeline of opportunities in both solar and wind tax equity that we expect to be in the market in 2014,” Eber said. “The market continues to expand in terms of the number of investors, and the active investors continue to increase the amount of dollars they’re making available,” he added. “So we expect the market to be able to serve the needs.”
Asked what their biggest concerns are moving forward, the speakers cited “transaction quality.”
“We’re seeing in this a wide variety of transactions, some of which are … similar to just a very easy project to get completed and then we’ve seen merchant and all sorts of stuff that people are kind of pushing the envelope” with, said Lance Markowitz, Union Bank’s senior vice president of leasing and asset finance.
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