The major theme of today’s Wind News is on financing wind development. Uncertainty in markets, caused by federal or state policy, creates a reluctance on the part of the finance community because they cannot assess risk. With the inauguration of President Trump, a great deal of uncertainty has been introduced in the market. One area of concern is tax policy. An important report from Bloomberg states, “Wind-power skeptic Donald Trump’s proposed tax reform may have an unintended consequence: threatening wind farms’ balance sheets. The president-elect’s proposal to cut the corporate tax rate to as low as 15 percent may curb availability of an esoteric, but critical, clean-energy financing mechanism known as tax equity, according to a report Friday by the Chicago-based energy and infrastructure adviser Marathon Capital LLC. “ The article goes on to say, “In tax-equity deals, clean-energy developers sell a portion of their projects’ tax credits to companies — typically big banks — that can apply the credits to their own tax bills. It’s a critical part of part of the financing process, and debt deals are often structured around tax-equity commitments.” And “Now, it’s one of the most-discussed topics among wind developers, bankers, investors and attorneys. Even without a concrete proposal on the table, it’s affecting financing activity.”
Another financing strategy called the “yieldco”. In Ten Clean Energy Stocks for 2017, yieldcos are defined as “companies with a business focused on the ownership or financing of operating clean energy assets, and use most of the resulting cash flow to pay dividends to shareholders. Operating clean energy assets include wind farms, solar farms, biomass and biofuel plants, and other sustainable infrastructure which reduces overall greenhouse gas emissions. Yieldcos often have a developer “sponsor” which holds a majority of the Yieldco’s stock, and gives the Yieldco the first opportunity to buy many of the developer’s projects, called a “Right of First Offer” or ROFO. Because Yieldcos own existing infrastructure and sell renewable energy, they are much less dependent on the continuation of government subsidies for clean energy than many renewable energy companies that have to sell or install products to make a profit. The stability of Yieldco cash flows (and dividends) depend much more on counter-parties (usually investment grade utilities) living up to their obligations than on government policy.
Even wind farms, which often receive an ongoing tax subsidy in the form of the federal Production Tax Credit (PTC) are relatively safe. When the PTC has been allowed to lapse in the past, the change has only applied to new wind farms, not wind farms already in production. This stability and current low valuations led me to include six Yieldcos in the list for 2017. The current low valuations mean that most Yieldcos cannot now issue new stock to fund acquisitions and grow quickly, but the resulting high dividends mean that there is significant protection against further declines because income investors do not require significant growth prospects to buy high dividend stocks as long as they believe the dividend is safe.”
To recap, there is uncertainty about lowered federal tax rates, uncertainty about rising interest rates, uncertainty about a possible repeal of the Production Tax Credit, uncertainty about the role of the federal government in mandating state energy policy and, in Ohio, uncertainty about state renewable energy mandates. We have been told by an industry representative that no new projects that must start from scratch will be built for the foreseeable future. Development will be focused on projects with leases that are in the pipeline right now as well as the repowering of existing wind projects.
This week Champaign Countians residing inside the footprint of EverPower’s Buckeye Wind received calls from an automated telephone survey group out of Columbus. The survey was very confusing and we think it would be difficult for anyone to understand. There were seven questions asking if you agreed or disagreed on a scale of 1 to 7. That in itself was confusing. How about yes or no? How about on a scale of 1 to 3? How about a choice “No Opinion” or “I don’t Know”? We believe the way the “survey” was constructed will allow manipulation of the survey results. We were called more than once so we know the initiative was flawed. Was the survey conducted to build an argument for PILOT? For modifying setbacks? For fighting against elimination of the Ohio renewable mandates? Only time will tell. We would be interested to know if anyone outside of Champaign County was called.
Here are the (approximate) questions:
Answer on a scale from 1 to 7 with 1 being strongly disagree and 7 being strongly agree
1. Agree or disagree: We need to scale down the use of coal
2. Agree or disagree: Expanded renewable energy increases jobs and economic growth
3. Agree or disagree: We need renewables in order to address climate change
4. Agree or disagree: Our faith tells us we need to support clean energy to be good stewards of the earth
5. Agree or disagree: Expanding renewables will enhance our national security
6. Agree or disagree: State government should establish Renewable Portfolio Standards (mandates)
7. Agree or disagree: State should let the free market work
In our last two issues, we discussed concerns about radar interference from turbines which could jeopardize military operations. And so it was with interest that we read the weather story in the Dayton Daily News about the Blue Creek Wind farm showing up on Doppler weather radar as a rain shower over Van Wert! This is an Avangrid (fka Iberdrola) project just like the one being contested in North Carolina. In a letter to the Trump Administration, North Carolina lawmakers objecting to the Amazon Wind Farm said, “No tears need to be shed for Iberdrola, which is the antithesis of the Make America Great again program.” The article also points out that President Trump dislikes Amazon owner, Jeff Bezos, who also owns the Washington Post. It could get interesting!
From the perspective of the wind industry, we read that Trump’s plan to turn over many policies and programs to the states may or may not help industrial wind. Investors are watching the North Carolina fight as well as anti-renewable legislation in Wyoming.
In Ohio, AEP is rumored to be the possible buyer of wind generated by EverPower’s Buckeye Wind project. In a recent interview with Julie Sloat, AEP President, the following question was asked, “How optimistic are you about Ohio’s long-term alternative energy activity? “ Answer: AEP Ohio plans to build 900 megawatts of wind and solar capacity in Ohio over the next five years. Ohio has an exciting opportunity right now to take control of its energy future and map out a long-term energy policy to support economic development and spur more energy investment in the state, including alternative energy.” biz journals.com 1/20/17
While federal and state policies are in flux, one corner of the renewable world seems to be doing just fine. Jereme Kent’s Findlay-based ONE Energy that builds on-site wind for use by manufacturers like Whirlpool and the Ball Corp. has secured $80 million in senior and subordinated debt from Prudential Capital.
The President’s choice for Treasury Secretary, Steve Mnuchin, testified in his confirmation hearing that he supports the phase-out of the Production Tax Credit. Notwithstanding, the headlines were that he supported the PTC! Fake Headlines! Media reports indicate “But there’s been speculation about whether the tax credit, which was renewed as part of a 2015 budget deal, could be a target for repeal in the case of a Trump tax reform package. ClearView Energy Partners, for example, didn’t rule out the idea in a research note after the election, considering dislike of the credits among some conservatives.”
Opinion seems divided over whether or not Rick Perry, nominee for Secretary of Energy would be good or bad for renewables. Some think bad as reports indicate “On the issue of climate change, Perry said he makes decisions based on sound science, especially when people’s lives are at stake but admitted to Senator Bernie Sanders that he doesn’t view climate change as a crisis nor does he believe that the U.S. should take the lead in transforming its energy supply away from fossil fuels.”
At 11:59 a.m. on Inauguration Day, the White House website was full of information about climate change and global warming, etc. One minute later at noon when President Trump took the oath of office – all such references were GONE. The President’s Energy Plan was posted saying in part, “Sound energy policy begins with the recognition that we have vast untapped domestic energy reserves right here in America. The Trump Administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans. We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own. We will use the revenues from energy production to rebuild our roads, schools, bridges and public infrastructure. Less expensive energy will be a big boost to American agriculture, as well.”
It was interesting to us also that the final line in the new official America First Energy Plan statement was: A brighter future depends on energy policies that stimulate our economy, ensure our security, and protect our health. Under the Trump Administration’s energy policies, that future can become a reality. (Those are the same issues raised in the local telephone survey!)
Finally, the U.S. Department of Energy released a new report Wind Vision: A New Era for Wind Power in the United States. We don’t imagine many more reports like this will be coming out in the next four years…