Page 333 - Fluid Power Engineering

294 Chapter Thirteen

Simple
Tax Scenarios NPV IRR Payback
Linear depreciation and no tax $(4.46) 5.5% 12
incentives
5-year accelerated depreciation with $(4.88) 4.9% 13
no carry over of tax benefits
5-year accelerated depreciation with $(1.66) 6.9% 10
tax benefits utilized
5-year accelerated depreciation + PTC $2.58 9.8% 8
with tax benefits utilized
5-year accelerated depreciation + ITC $4.22 11.5% 7
with tax benefits utilized

∗ NPV is in millions.
TABLE 13-11 Financial Performance Parameters

of tax-equity partnerships in which an entity that generates sufficient
taxable income in an unrelated area (like banking, insurance) owns a
majority stake in a wind project. Such a tax-equity partnership is able
to “monetize” the tax incentives. After most of the tax benefits have
been realized, then the majority ownership of the project flips to the
project developer. Through such a scheme, PTC or ITC are monetized
in the project.

Financing and Structure of Wind Projects
There are numerous methods of financing and structuring a wind
project. The methods may be generalized into two broad categories: 10

1. Corporate structure. Large utility companies, energy compa-
nies, and large wind development companies from Europe
are examples of this structure. Financing is done primarily
through internal funds and the tax benefits are used inter-
nally to offset income in the project portfolio.
2. Tax equity and flip investors. In this corporate structure, tax in-
vestors provide a fraction of the capital and, in return, get
tax benefits. After much of the tax benefits have been real-
ized and a predetermined IRR has been achieved for the tax
investor, the ownership of the project flips from the tax in-
vestor to the project developer. The reason for such a struc-
ture is to bring in capital to the project from investors that are
able to utilize the tax benefits. This structure has numerous
variations: