Tax Equity News

The Solar + Wind Finance and Investment Summit Soundbites: the Debt and Sponsor Equity Markets

Posted by David Burton

March 22, 2023

Posted in Renewable energy Blog article


The second annual Solar + Wind Finance and Investment Summit was held in Phoenix from March 12 to 15.

Below are soundbites addressing the debt and sponsor equity markets from various panel discussions. This is the second blog post of soundbites from this conference.  The first post on the tax equity and transferability panel discussions at the conference is available here.  The soundbites are organized by topic, rather than chronologically. They are edited for clarity.  You can click on the links below to go to the topic of interest to you. 

What the IRA Means for Debt Providers

The Inflation Reduction Act of 2022 (IRA) means there is going to be more equity in the deal, so a little less debt, but costs are rising due to inflation.”

            Project Based Debt Financing Provider, Co-CEO

Ramifications of the Failures of Silicon Valley Bank (SVB) and Signature Bank

“With the situation [(i.e., the failures of SVB and Signature Bank)] last week, we are being told our cost of funds will go up.”

            Japanese Lender, Managing Director Americas Project Finance

“We are still assessing the SVB situation.  Every deal has boilerplate language defining a “Defaulting Lender”.  We are looking at the sponsor having interest rate swaps with SVB.  If you have a letter of credit with SVB you probably have to look at getting a replacement.” 

            Japanese Lender, Managing Director Americas Project Finance

“I think there are going to be fewer banks lending the project finance market, and pricing is going to go up.  That is difficult for sponsors who also have to live with interest rate increasing and increases in equipment pricing.” 

            Japanese Lender, Managing Director Americas Project Finance

Loan Sizing and Underwriting Policies

“We size debt so that we could get paid within the contracted period at P90.”

            Japanese Lender, Managing Director Americas Project Finance

“Now interest rates are higher but lenders are willing to value a merchant tail when they were not five years ago.  Due to that, I don’t think we are going to see mini-perms that are upside-down [(i.e., the balance of the loan is greater than the value of the project)] due to higher interest rates.”

            Project Based Debt Financing Provider, Co-CEO

“We like to say that projects are like bonds, but they are not.  There are so many levers to pull with a project that you don’t have with a bond.  We think higher merchant curves are helping asset prices stay the same if not increase, despite the increase in interest rates.”

            Global Alternative Asset Manager, Partner

“One hundred percent merchant is not for us, but we are happy to have a five or six year merchant tail.”

            National Cooperative Bank, Banker

“We did one fully merchant deal years ago, and it was 50 percent  loan-to-value; it worked out fine, but we are not trying to find more fully merchant deals.”

            Project Based Debt Financing Provider, Co-CEO

“Historically, we have not done pre-notice to proceed (NTP) [(i.e., before the construction contractor starts work)] financings, but I had a meeting yesterday and said we would take a look at it.  We are open minded, but what I remember is financing orders of gas fired turbines then the value of the turbines fell and the lenders got burned.

            Japanese Lender, Managing Director Americas Project Finance

Independent Engineers’ (IE) Reports and the Accuracy of Production Forecasts

“We have known for a while that P50 is under performing in portfolios and P90 is more accurate.”

            Project Based Debt Financing Provider, Co-CEO

“Wind has been closer to P50, but solar has been performing closer to P90.”

            Western US Regional Bank, Head of Power & Project Finance

“We are paying more attention to IE reports and who is providing the IE report.  We have more comments than usual on some IE reports because the quality of IE reports has declined.”

            Western US Regional Bank, Head of Power & Project Finance

“Transmission is a headwind and is going to be a bigger and bigger problem.  We are making a big ask of a transmission built for dispatchable energy to cope with intermittency.”

            Energy Software Company, Vice President

“What was presented as a transmission stress test five years later turns out to have been the base case.”

            American Multinational Financial Services Company, Managing Director

Storage

“Stand-alone storage is a major growth sector.  We are going to see a lot of deals in that space.”

            Western US Regional Bank, Head of Power & Project Finance

“Merchant storage is very different than merchant solar.”  [The context was that merchant storage has less risk than merchant solar.]

            Western US Regional Bank, Head of Power & Project Finance

“We use different debt service coverage ratios for ERCOT energy [(i.e., an energy generation project, like solar)] versus ERCOT ancillary services [(i.e., a battery providing balancing services to the grid)].  Not all merchant is created equal.”

            Western US Regional Bank, Head of Power & Project Finance

Land Financing

“Urban storage means really expensive land, that has high alternative use. “

          Land Financier, President

“Land is maybe three to five percent of the capital stack.  Optimizing that did not used to be interesting but as returns have gotten more compressed, it has become more interesting.”

          Land Financier, President

“The cost of land that is going to have solar on it is much higher than plain land.”

          Land Financier, President

“Land financing can’t have inter-creditor agreements or it would just sink under the weight of the execution.”

          Land Financier, President

Distributed Generation (DG)

“DG developers are much more capital constrained than the utility scale developers.  We have been suggesting a revolving warehouse facility, but they may not be big enough to qualify for such a facility.”

            Energy Financial Advisor, Principal

Community Solar

“So long as you have utilities backstopping defaults by the subscriber base then community solar is a fantastic opportunity.”

            REIT, CEO 

Sponsor Equity Markets

“Almost universally equity investors have moved up the risk curve over the last five to seven years, what that means is that they are coming into the process earlier: NTP, then pre-NTP, then true development risk through projects or platforms.”

            Sustainable Technology and Infrastructure Investment Bank, Managing Director

“The demand for US liquefied natural gas (LNG) due to Russia are supporting wholesale power pricing, which supports the value of renewables project.” 

            Global Alternative Asset Manager, Partner

“The length of interconnection queues feeds into the scarcity value of projects.”

            Sustainable Technology and Infrastructure Investment Bank, Managing Director

“The equity capital requirements of renewables is growing: the letters of credit developers have to post and the deposits developers have to make are getting larger and being required earlier by utilities.”

            Diversified Financial Services Company, Head of Renewables

“The amount of available equity capital dramatically exceeds the amount of clean equity capital investment opportunities.  There is three times as much buying power within just private equity sources as there are buying opportunities.”

            Investment and Advisory Financial Services Firm, Managing Director

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Tax Equity News reports on issues where renewable energy meets tax policy in the United States.

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