A bank duo is seeking regulatory approval to invest tax
equity in a pair of wind projects, suggesting that project
finance deals are moving forward despite uncertainty around the
potential impact of tax reform, which deal watchers say could
affect the bidding in several live sale processes for wind
Bank of America Merrill
Lynch and JP
Morgan are looking to buy tax equity stakes in
the two EDF Renewable Energy wind
projects, which are under construction in Oklahoma and
The Oklahoma project is supported by a virtual power
purchase agreement whereas the Minnesota project has a power
hedge in place.
Each bank intends to acquire 50% of the tax equity
associated with the 154 MW Rock Falls project in Kay and Grant
counties, Okla., and the 200 MW Red Pine project in Lincoln
County, Minn., both of which are expected to be online next
EDF requested permission for the deals from the
U.S. Federal Energy Regulatory
Commission in two separate filings on Nov. 9.
The size of the tax equity investments could not be
established by press time. Spokespeople for EDF Renewable
Energy in San Diego and BAML in New York did not respond to
inquiries. A spokesperson for JP Morgan in New York declined to
The filings come as market participants warn
that uncertainty around the Republican
federal tax reform bill that was proposed by the U.S.
House of Representatives G.O.P. and passed through the
chamber last Thursday could slow down wind project financings
The House bill would lead to a sweeping reform and reduction
of the production tax credit, which subsidizes wind project
development in the U.S.
The bill now heads to the U.S. Senate,
where the proposal put forth by the chamber’s
Republicans has left the incentive largely untouched.
"It creates friction," says a New York-based project finance
banker, who explains that having visibility into future tax
rates is needed to size tax equity deals appropriately, "unless
you have a rich sponsor that can close up more robust
assumptions and then guarantee any serious shortfall."
The uncertainty is also likely to have an influence on
potential asset sale deals in the works, as the impact of tax
reform on project financing arrangements will have a knock-on
effect on valuations, the banker adds.
"Generally, uncertainty makes valuation more difficult. It
expands the bid-ask spread," says a second project finance
banker, in Los Angeles. "People will take a view."
Wind assets in the market include Lincoln Clean
Energy’s Amazon Wind Farm Texas
and Starwood Energy Group
Global’s remaining 51 % stakes in the
Electra and Horse Creek projects, all in Texas (
PFR, 11/1 and story, page 7).
Sale processes are also well underway for several U.S. wind
development platforms, including Infinity
Renewables and Apex Clean Energy (
Uncertainty around tax reform is not new, but has been
building since the election of President Donald
Trump just over a year ago, and was given a jolt when
the House and Senate unveiled the most concrete proposals yet
in recent weeks.
"It’s been on radar screens since last
year’s election," says the project finance banker
in L.A., noting however that "it’s fair to say
that the [proposed] changes to the PTC took people a little off
ALL TAX POLITICS IS LOCAL
For EDF’s Rock Falls project, however, the
uncertainty caused by federal tax reform may only compound
difficulties caused by the expiration of
Oklahoma’s state-level wind production tax credit
at the end of June.
Virinder Singh, director of
regulatory and legislative affairs at EDF Renewable Energy,
urged state lawmakers to push the expiration date to the end of
December, telling National Public
Radio's StateImpact Oklahoma in
March that millions of dollars could be lost on the Rock Falls
project as a result of the withdrawal of the incentive.
In April, however, Gov. Mary
Fallin (R) signed a law that ended the incentives
on July 1.
The Rock Falls facility will sell 120 MW of its output
to Kimberly-Clark Corp. under a
virtual PPA. The contract is the paper products
multinational’s first with a utility-scale
renewable project, according to a statement issued by EDF on
EDF’s plans for the remaining 34 MW of the
project’s output could not immediately be
Rock Falls will interconnect with the transmission system
owned by Oklahoma Gas & Electric
Co. in the Southwest Power
The Red Pine project will meanwhile interconnect with the
transmission system owned by Northern States Power
Co. and sell its output in
the Midcontinent Independent System
Operator market on a merchant basis, according to
paperwork filed with the Minnesota Public
Utilities Commission (
The project has a long-term hedge with an investment-grade
financial institution, according to an October 2016 filing with
the PUC. The identity of the hedge provider could not be
established by press time.
Under the terms of the hedge, the project will receive a
fixed price for sales of electricity that will offset the
variable price exposure that would otherwise have made the
asset less attractive to prospective financing partners,
including tax equity investors, according to the PUC
Apex Clean Energy had considered
financing its 300 MW Dakota Range I and 300 MW Dakota Range II
projects in South Dakota, both of which are also in MISO, on
the basis of power hedges, before ultimately selling them
to Xcel Energy earlier this year (
EDF acquired Red Pine, then in early stage development,
Wind (now Infinity Renewables) in 2015.
Additional reporting by Richard Metcalf