Q&A: Kevin Walsh, GE Energy Financial Services – Part I
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Q&A: Kevin Walsh, GE Energy Financial Services – Part I

Despite the expiration of the production tax credit, wind is set to have a solid year of project financings, according to Kevin Walsh, managing director and group head of power and renewables at GE EFS. “We still think that there’s going to be a fair bit of activity. We have a very robust pipeline on the wind side to get those projects financed and built,” Walsh says, pointing to projects that have qualified as in-construction by the end of 2013 and are now looking for completion by 2015. Since Walsh took his current post in 2006, GE EFS has invested an average of about $1 billion per year. Walsh spoke to Editor Sara Rosner about what’s ahead for wind and solar financing and development in the U.S. and how GE EFS is approaching these markets and beyond.

PFR: How has deal and project flow differed from years past both for GE EFS and the industry as a whole? How do you expect that trend to proceed in the next 12 months?

Let’s talk about wind for a second. The production tax credit expired at the end of last year but it expired in a different way than it has in the past in that projects had to commence construction by the end of 2013. These projects continue to be under construction with a goal to be completed in the next year and a half or so. We’re working with our customers and partners to help them achieve that goal.

We still think that there’s going to be a fair bit of activity. We have a very robust pipeline on the wind side to get those projects financed and built. On the solar side, the investment tax credit doesn’t expire until the end of 2016. We continue to see a flow of projects there, as well.

Of course, we’re not just a U.S. investor. We made some announcements recently where we invested in a solar project in India. We invested earlier this year in two wind farms in Ireland, another example of our international activities.

PFR: It sounds like you’re still anticipating significant activity in wind, even though the credit is expired. Can you elaborate on that?

Yes, even though it’s expired. In years past when the PTC expired, it required a project to achieve in-service status by the date of the expiration. In this case, the expiration requires that the project had commenced construction, which was a fairly low threshold. Now they have to get the project completed.

Some of these projects have commenced construction with the developer doing that on their own. Now they’ll come out and look for the long-term bulk of the financing over the next few months to allow the project to get completed. Most projects are seeking to get completed by 2015, which is one of the safe harbor provisions under the PTC. If the projects commence construction by 2013, as defined under the rule and finished construction by end of 2015, then that is considered to be within the so-called safe harbor.

The bulk of the money required for those projects will be dispensed over the coming months. We have a very significant pipeline of projects that continue construction and will finish construction in the coming months. The nature of some of our projects is that we don’t actually put our money in until it has completed construction. There are a few cases where we come in during construction. It depends on the financial product that we’re offering.

The industry is expecting to see upwards of 10 GW of wind being built here in the U.S. in the next 18 months.

PFR: And that’s a direct reflection of the support of the PTC?

It’s certainly aided by it. There’s no question that the PTC is still a meaningful part of the economics for these projects, typically in the absence of a price on carbon. Of course, the ratepayer is the utility offtake party and then, directly, the ratepayer is the beneficiary of that because the power contracts are competitively bid for these projects. So the PTC benefit is flowing through to the offtake party. 

PFR: What are your thoughts on what financing and developing wind will look like after 2015?

The Senate has, in its tax extenders bill, a proposal for extending the PTC. Obviously, it still needs to get through the House, but there is expected to be an extenders bill until we, as a country, get our heads around a more comprehensive tax reform. We think there is a reasonable chance that there is some extension of the PTC until we get to a comprehensive tax reform legislation.

Afterwards, it depends on what we see from Washington. We’re encouraged by the fact that the industry continues to make great strides to improve the technology to take costs out so that the industry can continue to thrive in a world where incentives are reduced or eliminated. As I mentioned, we’re not just a U.S. investor. Outside of the U.S., the incentives for renewables are offered in a different way. 

PFR: On the state level, specifically with regards to renewable portfolio standards, we’re hearing grumblings that a lot of RPS is about to be met or has been met in many states. How is that affecting the financing and development of renewables?

I think it’s going to be a state-by-state issue. States will pursue what’s best for them given what they’re trying to achieve on climate, energy diversity and the jobs front, etc. We think, given the dramatic improvements in technology, that wind still has promise even beyond the RPS. We’ve seen some of that in the last few months, if not the last few years, where states and their utilities have gone beyond the RPS because the price is so attractive.

In very good wind regimes, the price being offered for these wind projects is less than $30 per MWh or $0.03 per kWh. That’s pretty good value.

Checkback next week for Walsh’s take on distributed generation and utility-scale solar as well as the firm’s appetite for Latin America in for the second and final installment of the Q&A.

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