Document Actions
Ownership Structure Considerations
Ownership Structure Considerations
The following factors should be considered when deciding upon the corporate and ownership structure for the Community Wind project.
Tax Benefits vs. Low-cost Financing
A primary decision that should be made early in the project design process is whether the project will be structured to take advantage of the PTC and MACRS Accelerated Depreciation, or to take advantage of tax-exempt financing and/or other possible benefits of a public or nonprofit structure. Projects that take advantage of the PTC realize substantial economic benefits, but also see substantial increases in ownership complexity. The difficulty of finding investor(s) with sufficient and appropriate tax appetite, and designing an ownership structure that is legal and not overly complex should be carefully considered. For further investigation of this topic, review Bolinger et al.’s “A Comparative Analysis of Community Wind Power Development Options in Oregon” listed in the reference section.
Existing Corporate Structure
The existing corporate structure of the primary group developing the project should be taken into consideration. It may be that no new corporate/business structure needs to be developed to create a project that takes advantage of low-cost financing or tax incentives. Community wind projects are complex regardless of their ownership structure, and avoiding creation of a new legal entity would reduce complexity in one area, lowering costs and risks.
Organizations (municipalities, PUDs, schools) that can access lower cost and/or tax-exempt financing such as the new Federal Clean Renewable Energy Bonds, usually also require a lower rate of return on their investment, or may have non-financial goals. The combination of these benefits may result in a viable project scenario even though the project is not eligible for tax benefits. If tax benefits—the PTC and Accelerated Depreciation—are to be realized by the project, investors with sufficient and appropriate tax liability must have an ownership role.
Complexity and Project Coordination
A substantial barrier to community wind development is the high transaction cost relative to the total project cost—the cost of feasibility studies, permitting, project financing and interconnection negotiations, power purchase agreements and construction management. Ownership and financing structures have varying levels of complexity, and with increased complexity comes increased risk and cost. Complexity will cost either time or money, and usually both, even if the project coordinator has the time, motivation, and skills needed to take on much of the work. Risk has the same effects, and its allocation among the project coordinator, final equity owner(s), and financing sources is a key issue for successful project capitalization. Various plans may need more outside expertise than others, which is a cost to be considered in budgeting and planning. An estimate of the cost of legal, financial, and management expenses—which will increase with complexity—should be carefully considered when choosing an ownership structure and financial plan.
Investor-Owned Utility vs. Consumer-Owned Utility Service Territory
An important factor to consider is whether the project will be located within the service territory of an Investor-Owned Utility (IOU—such as Pacificorp, Portland General Electric, or Idaho Power) or a Consumer-Owned Utility (COU—such as a Rural Electric Cooperative, a Public Utility District, or a Municipal Utility).
In May 2005 the Oregon Public Utility Commission (OPUC) issued an order
related to PURPA policies (Public Utility Regulatory Policy Act
policies). Under OPUC Order 05-584, the power purchase price and terms
are likely to be much better when selling power to an IOU. For more details on this order, please read "PURPA and Avoided Costs" in the Utility Considerations section.
