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 assets.

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 Minnesota.

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 month.

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 comment.


The filings come as market participants warn that pfr112017 pull quote 1uncertainty 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 ( PFR, 11/10).

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 ( PFR, 6/1, PFR, 8/11).

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 guard."


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.

pfr112017 pull quote 2Virinder 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 Sept. 14.

EDF’s plans for the remaining 34 MW of the project’s output could not immediately be learned.

Rock Falls will interconnect with the transmission system owned by Oklahoma Gas & Electric Co. in the Southwest Power Pool market.


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 ( PFR, 11/13).

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 filing.

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 ( PFR, 10/2).

EDF acquired Red Pine, then in early stage development, from Infinity Wind (now Infinity Renewables) in 2015.

Additional reporting by Richard Metcalf

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