Project Funding
Renewable-energy projects are usually funded from a combination of sources, usually including some “skin in the game” from the customer itself. There are a great many such sources, especially given the focus on the environment. The Needs Analysis and Feasibility Study are funded by the customer and reimbursed from the project funding.
In the U. S., most utility-scale projects are made economical by tax benefits. The main tax benefit available is the Investment Tax Credit. Depending on which of its conditions are met, this can be a credit to the project’s owner of 30% to 60% of the the entire price, or even more if structured in a particular way. An additional credit of 35% over 7 years is available if the project is located in an Economic Opportunity Zone, although the net benefit to the project owner will be considerably less after all adjustments and fees. The final major tax benefit is that the price of the project can be depreciated over 5 years, with most of the depreciation taken in the first year. The after-tax value of this benefit depends on the owner’s federal and state income tax bracket.
Because not all owners can themselves take full advantage of the tax benefits, tax-equity investors who can use these benefits are often brought in to finance large projects. Such investors are often large banks, but can be any entity that has sufficient tax appetite. IRS has access to such investors and partners with the nation’s leading tax-equity investment expert company to facilitate these complicated transactions.
Borrowers
The borrower can be the customer, whether public, private, or a public-private partnership. An alternative is to form an SPV as borrower for the project.
Credit
Credit structures are usually structured-project financing or tax-equity investment.
The project’s financial metrics are a key to obtaining attractive financing. These include income, asset efficiency, liquidity, leverage, and debt coverage. Any deficiencies may be able to be compensated for by security, cash reserves, covenants, other enhancements, or credit ratings.
Lending risk is typically mitigated through credit insurance of various types.
Obtaining Funding
Securing funding for large projects is a complex specialty in itself. It requires intimate familiarity and experience with the important lenders, including how to work efficiently and effectively with them to get projects funded.
The IRS team includes well-connected, highly experienced experts in structured project-financing. They have succeeded in having over $100B in projects funded over the past 35 years. Functioning as part of the IRS integrated team, they can be much more effective at lower cost than separate, outsourced firms.
The Funding Process
The Needs Analysis and Feasibility Study prepares the way for funding the entire project. It results in a comprehensive report of great value to customers, regardless of subsequent actions. It details their exact needs and how best to fulfill them. For this reason, it is funded by the customer and reimbursed from overall project financing. The study
- Prepares high-level commercial and financial models for potential lenders
- Recommends best financial, contracting, and ownership structures for project
- Identifies potential lenders, borrowers, and credit structures for the project
- Evaluates these possibilities on credit factors, financial metrics, and risk mitigation
- Recommends refinements to improve and enhance borrower’s creditworthiness
- Helps customer choose most promising lenders and financial structure
Once the Needs Analysis and Feasibility Study are completed, IRS works closely with the customer, local partners, and financing resources to
- Negotiate reasonable documentation with selected lenders
- Compile a comprehensive project-application package for selected lenders with detailed financial model, project information details, and information on all responsible parties
After lenders issue loan commitments, IRS helps prepare and negotiate all lender finance-documents.