Page 334 - Fluid Power Engineering

Financial Modeling of W ind Projects 295

a. Strategictaxinvestor.Thisisfavoredbydevelopersthathave
the expertise but do not have the capital to fund a wind
project. Strategic tax investors are brought in to fund a very
large fraction (as high as 99%) of the project. In return, the
investors gets 99% of the cash flow and tax benefits. This
continues until the strategic investor realizes an expected
level of IRR. At which point, the ownership of the project
flips to the developer, who buys the majority stake in the
project at market value from the strategic investor. For tax
considerations, the strategic investor has to own at least 5%
of the project after the flip.
b. Institutional tax investor. This is similar to strategic tax in-
vestor, except that the developer contributes some capi-
tal (as high as 30–40%). The cash and tax benefits are not
split according to the equity ownership. Instead, the insti-
tutional investor takes 100% of the tax benefit, while the
developer gets 100% of the cash benefit. When the devel-
oper has received all the money that it had invested, then
all the cash flows to the institutional investor. After the in-
stitutional investor has reached an expected level of IRR,
the project ownership then flips. At this point, most of the
cash and tax benefits are transferred to the developer. This
is the most commonly used flip structure.
c. Pay-as-you-go. This is similar to the previous two tax eq-
uity investments, except that the tax investor pays into the
project to increase equity over time as the PTC tax benefits
are realized. In addition to the initial investment, the tax
equity investor pays into the project as energy is produced
andasthePTCsaremonetizedbythetaxequitypartner.For
each dollar of PTC tax benefit that is realized by the tax in-
vestor, the tax investor pays 80–90 cents as equity contribu-
tion into the company. The exact mechanics is case-specific;
in most cases, the tax equity investor pays the developer,
while some amount of cash flow goes to the tax investor.
d. Cash leveraged. This structure is a variation on the institu-
tional investor. The variation is addition of debt financing.
In most cases, the amount of debt is 40–60% of the total
investment and is secured by the assets.
e. Back leveraged. This structure is similar to the cash lever-
aged case, except that the developer takes on debt as
opposed to debt taken by the wind company that is jointly
owned by the developer and tax equity investor.

Table 13-12 contains results of LBL calculation for the different project
structures. Although the numbers illustrate the norms in the industry,