Tenaska has begun discussions with lenders to arrange construction financing for a portfolio of build-transfer wind projects in Missouri for Empire District Electric. The utility intends to bring in third-party tax equity through a structure that has been contested by the state's Office of Public Counsel.
Tenaska won the projects, North Fork Ridge and Kings Point, in a request for proposals issued by Empire in 2017 as part of a plan to replace its 213 MW Asbury coal-fired plant.
Steelhead Americas, the North American project development arm of Danish turbine maker Vestas, is co-developing the projects alongside Tenaska and expects to deploy some 140 2.2 MW turbines. Joint ventures such as these are expected to flourish in the coming months as a way for turbine makers to deploy 100% production tax credit safe-harbored equipment, say deal watchers.
Located in Barton, Dade, Jasper and Lawrence counties, the two projects total 300 MW. Apex Clean Energy also won a project in the same RFP—its 300 MW Neosho Ridge wind project in Neosho County, Kan.—which Empire intends to hold under the same tax equity financing vehicle.
All three projects are due to be online on or around Jan. 4, 2021, at which point Empire intends to purchase them through a tax equity partnership.
Wells Fargo is the proposed lead tax equity investor, having signed a letter of interest in October last year.
Utility tax equity
Utility companies have had increased appetite for third-party tax equity deals since the Tax Cuts and Jobs Act was passed in 2018, reducing their tax liabilities and, therefore, their ability to use the tax credits generated by renewable projects they own (PFR, 5/30/18).
"Given the time value of money, using a tax equity structure (as compared with direct ownership of the Wind Projects by Empire without a partner) would result in between $4 and $7 per MW hour more savings for Empire customers," said Todd Mooney, vice president for finance and administration at Empire's ultimate parent company, Algonquin Power and Utilities Corp., in testimony to the Missouri Public Service Commission in support of the plan last October.
Empire obtained pricing from four potential tax equity investors, according to Mooney's testimony. Wells Fargo offered the lowest-priced flip and, unlike the others, did not seek commitment fees, he noted.
In order to provide the steady cash flows needed by tax equity investors, the projects will sell their output into the Southwest Power Pool at market prices rather than it being used directly by the utility. Each project is expected to enter into 10-year hedge and renewable energy credit purchase agreements with Empire to firm up their power sales prices. The utility, meanwhile, will purchase an equivalent amount of energy back from the SPP market.
Missouri's Office of Public Counsel has opposed the deals on the grounds that ratepayers will be landed with the costs of the $1.2 billion investment and effectively guarantee both the utility and the tax equity investor a return on their investment even though Empire does not need the generation.
The Missouri PSC, unswayed by the OPC's argument, approved the deals and granted certificates of convenience and necessity on June 19. The OPC filed for an appeal on June 28.
"Even if Empire closed its 200 MW Asbury coal plant today it would still have sufficient energy generating capacity to serve its customers for the next ten years without adding these wind projects," wrote the OPC in its filing calling for a rehearing.
Construction is slated to begin this fall.
Spokespeople for Tenaska in Ohama, Neb., and Wells Fargo in Chicago declined to comment on the transactions and a representative of Empire's immediate parent, Liberty Utilities, in Joplin, Mo., did not respond to inquiries.
(Additional reporting by Richard Metcalf)