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Feasibility Capital & Equity Partners
Sources of Project Capital
Feasibility Capital
During the Feasibility phase, the project coordinator is initially risking time and resources without certainty that a project will come to fruition. At the very beginning, the required project capital is likely to be nominal, but as the process proceeds, significant cash has to be spent to develop a viable project plan and the documentation needed to obtain outside funding or incentives. For instance, an anemometer installation, together with a tall meteorological tower and data analysis may cost between $5,000 and $10,000, but without sufficient wind data a project can’t go forward.
An early task of the project coordinator is assessing how much of his or her own resources (time and cash) can be budgeted for work on the project concept. Another is identifying what incentives are available that may help cover those costs, and, if possible, producing the needed documentation to qualify for and obtain these incentives.
It is for these reasons that funds available for feasibility studies and development of the project concept are so valuable. The USDA’s Value-Added Producer Grant (Section 6401 of the Federal Farm Bill), offers grants for business planning, feasibility studies, and working capital related to value-added agricultural activity (including wind energy development). Value-Added Grant funds may be used to pay up to 50% of the costs for carrying out relevant feasibility studies. In addition, project sponsors in Oregon should contact the Energy Trust of Oregon early in the planning process. The Energy Trust offers various incentives for wind development, and may be able to offer grants for work in the feasibility stage.
Engaging a cohort of sponsors is another method for raising early capital. It is important to consider who has an interest in the project’s success, who has needed skills or time available, and who might be willing to risk money or in-kind services in exchange for participation in a promising concept.
Finding an Equity Partner
This section originally appeared in “Community Wind Financing,” written by Charles Kubert at the Environmental Law & Policy Center.
Finding an outside tax-motivated investor is one of the greatest hurdles facing community wind projects that want to realize tax and depreciation benefits. Despite the recent growth in the U.S. wind power industry, the pool of large investors for these projects has been relatively small. Most of the equity capital for U.S. wind power projects has come from a handful of strategic investors such as subsidiaries of utility holding companies (e.g., FPL Energy and PPM Energy). Institutional investors, such as commercial banks and insurance companies, have large tax liabilities and experience in structured finance; however, only a few U.S. institutional investors are active in wind power projects, and these invest in larger projects initiated by commercial developers. Another group of potential corporate investors is other companies that have tax liabilities and may want to reduce their corporate income taxes while investing in a “green” business. As awareness of wind power grows and the tax and regulatory environments stabilize, some large corporations may see the benefit of these investments. Any of these equity partners—strategic or institutional—will be seeking after-tax rates of return of 15–20 percent with the non-strategic investors seeking returns at the higher end of the range.
