by David Wagman, Chief Editor, REWNA Magazine
Published: May 17, 2010
Wind power plant developers have an additional financing option available to them, thanks to changes in federal tax law. Previously, production tax credits were available to parties that owned, operated and sold electricity generated by the wind project. The changes now allow for leasing entities not directly engaged in project operations to claim either investment tax credits or to qualify for an ITC cash grant in lieu of production tax credits. This additional flexibility broadens the financing options available to project developers.
And that opens a new source of money for developers, said Lance Markowitz, senior vice president and manager of the Leasing and Asset Finance Division of Union Bank, N.A., which has been in the power business for close to 30 years. Markowitz, a Los Angeles native who graduated from the University of Colorado at Boulder, leads a division that focuses on providing finance to the renewable energy sector, largely in the U.S. and Canada. The division also actively provides construction and term loans for renewable energy projects.
In 2009, the unit served as lead arranger for eight construction and/or term-debt financings totaling some $1.7 billion and representing 950 MW of capacity. It also was a lead investor in nine wind and solar projects. Union Bank has partnership or lease investments in 20 renewable energy projects aggregating over 1,750 MW and $3.7 billion in value.
Leasing options can be attractive because they can provide more incremental financing and help clarify the extent of a firm's financial obligation, Markowitz said.
"In a flip structure the cash is either shut off or turned on," he said. As a result, a developer may see no cash at all. Under a rental obligation, certain coverages relative to cash flow are targeted. The result is more consistency across the project lifetime. "We're getting rents, tax benefits and residual benefits" which, when compared with the loan or partnership over 10 years, result in a larger financing amount, he said.
Markowitz set up a lease structure for a portfolio of four photovoltaic projects totaling 6 MW. Each project was bought individually, but the cash flow went into a waterfall structure made up of revenue collected, expenses paid and rent dispersed on the transaction.
"The developer got fairly significant financing," Markowitz said. A key component to writing a lease is to pay market value for the assets. For solar photovoltaic assets he said that was around $6 a watt "and prices are going down significantly."
Union Bank is part of the Mitsubishi UFJ Financial Group's (MUFG) project finance effort. Some clients include Acciona, AES, Enel, EnXco, Infigen, SunEdison, Terra-Gen Power and EME.
Markowitz and his two-person team, who include Melisa Wilson, senior vice president, and Kenji Ogawa, vice president, look for fully developed projects with a well-defined outlook. In evaluating a loan opportunity the bank considers the quality of the developer, the terms and quality of the resource power purchase agreement, the quality of the technology and the adequacy of the resource.
"We need to have confidence in the resource projections," he said. Land rights and water rights are also important review criteria.
Apart from its lending activities and partnership investments, Union Bank, N.A., has been active during the past decade in underwriting leasing solutions for the power sector. To date, Union Bank has been a lead investor in 14 power generation facilities that use a lease structure. These facilities aggregate over 4,500 MW and $4.3 billion in value.
For example, a U.S.-based chemical company wanted a 750 MW cogeneration facility, including steam for its own internal use and power to sell to the local distribution grid. Union Bank bought the project and leased it back to the chemical manufacturer for 20 years. The lessor earns a stream of rents and monetizes the depreciation and residual interest in the facility.
"We have interests in 5,000 to 6,000 MW through partnerships and leases," Markowitz said.
Leasing clients include AES, SunEdison, First Energy, Mirant and Calpine. While leasing in the renewable energy market remains nascent, Union Bank believes that leasing will become an increasingly important financing tool due to certain changes to the tax code as well as continued growth in the renewable energy market.
UnionBanCal Corp. is a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which itself is a unit of Mitsubishi UFJ Financial Group, Inc.
Info Provided by:Scott's Contracting GREEN BUILDER, St Louis "Renewable Energy" Missouri.http://www.stlouisrenewableenergy.com, contact scotty@stlouisrenewableenergy.com for additional information
Curious about who installed the most turbines in Europe last year? Or what towers are most popular in offshore installations? The European Wind Energy Association's annual report on offshore trends is a valuable source of these and other key technology indicators. Installed generating capacity increased 31% in 2012. Interestingly, the average turbine size remains 4 MW, in spite of the trend to bigger and bigger blades.
Fitting the turbine to the environment is no better demonstrated than in Bavaria. With low winds and tall forests, smaller turbines on tall towers are perfect for the heavily forested region. The low wind market segment is heating up for just this reason, according to Wind Power Monthly. GE, Nordex, and other manufacturers are testing this low wind niche with a slew of 2.5 MW turbines.
Every engineer wonders what's wearing out in a working turbine, but how many of us get to tear one apart in the middle of its lifespan? The U.S. National Renewable Energy Laboratory did just that. They ran a 1 kW grid-connected SWIFT turbine for two years, then ripped it apart. There were the usual paint chips and wear marks on the nose cone, but the generator presented more serious issues.
Longer blades mean more power, but at some point weight and torsional stress become limiting factors. Sweep-twist blades shed turbulence loads at the tip, in much the same way whale and porpoise fins reduce drag. Renewable Energy World reports on the Star project, which crafted a prototype sweep-twist blade. In its final 56 m form, it converted turbulence into a 12% power improvement over traditional blades.
Monitoring blade stress and wear is critical to an effective operations and maintenance program. Copper strain gauges are typically used for blade load measurement, but they suffer from limited lifetimes and calibration instability. Optical strain gauges offer several advantages, according to this study. It stresses better reliability, cleaner data, and reduced recalibration headaches.
Is your maintenance and operation team effective? Benchmarking turbine uptime against industry norms is a great way to check your maintenance ROI and spot patterns before they become problems. Luckily, Sandia National Laboratories has done the basic work for you. Their Continuous Reliability Enhancement for Wind (CREW) database contains a wealth of information on predicted uptime, wind speed and generation calculations, and contributors to turbine unavailability.
For the past 18 months the U.S. Occupational Safety and Health Administration (OSHA) has been reviewing clearance issues inside turbine towers. OSHA expects a 30 in. clearance between the ladder and any fixed objects. In many towers, mating flanges, bolts, and other objects intrude on this space. Operators and manufacturers are holding their collective breath as they await a ruling that may require ladder relocation in hundreds, if not thousands, of towers.
