Prepaid Leases for Windpower
Improved economics for uncertain times
Feb 21, 2017, 09:10 ET
ARMONK, N.Y., Feb. 21, 2017 /PRNewswire/ -- Jupiter Renewables has created the only leasing structure for wind power using production tax credits. This is the most powerful answer to an uncertain financing climate. Jupiter launched this patented and patent pending product in December of 2015.
- Generates a lower cost of capital than the industry standard "flip" structure
- Can Deliver over double the present value to the project sponsors
- Makes marginal projects financeable
This productivity is needed more now. The reason is that corporate tax rates may be decreasing. Lower rates actually decrease overall economics. It is clear that it is time for the industry to adopt this innovative financing structure.
With the "flip", complacent project sponsors are forced to face declining economics combined with the need to provide substantial indemnifications to investors. And the supply of investors is limited giving investors the ability to demand high profits.
The sale-leaseback solves these issues. It is often possible for active project sponsors to use the increased profitability of the lease to offset the lost tax benefits. It is also possible to prepay the lease passing on enough of the benefit of the financing to the investors to offset potential decreases from a lower corporate tax rate.
The lease achieves this by lowering the risk in the wind farm for the first ten-year period. This is when investors are most concerned. The lease brings together a consortium of parties to take different risks through third party contracts. The profitability allows Jupiter Renewables to create custom solutions for issues. Jupiter has solutions for location basis risk, marginal wind speed, and other project specific risks.
Like the printing press this patented program is a classic combination of separate existing elements. The whole is greater than the sum of its parts.
The industry has been implementing many of the risk management tools included in Jupiter's original patent. But these tools are still used within the "flip" structure. For this reason, they are missing out on significant benefit.
With the addition of the prepayment, the lease shares the tried and tested tax structure used by over 1,000 MW of wind farms in the US Northwest; it is a prepaid service contract. But for book and regulatory accounting it qualifies as a lease. Earnings for Sponsors are accretive, and financial investors can book this investment as high investment grade debt.
CONTACT:
David Freund
914-273-2212
[email protected]
SOURCE Jupiter Renewables