Golden, Colorado, November 21, 2021
ArcVera’s new report studies the anticipated changes to project financial structure, risks, and IRR associated with a proposed United States Congress “direct payment” method associated with the Production Tax Credits (“PTC”), to incentivize the implementation of renewable energy projects.
The tax-equity structure currently used in many renewable energy financings, however, has project and non-project related limitations, which limits both the pool of potential investors, and the ability of the sector to fully benefit from the unprecedented Environmental, Social, and Governance (“ESG”) interest and capital availability.
The aforementioned limitations of the current PTC-based system may be reduced or eliminated by a current Congressional proposal to alter the incentive with the option of direct payments. This change would alter the project finance structure for renewable energy projects to more nearly that of a more typical infrastructure project, with sponsor equity and project level debt.
This change, in addition to increasing the number of potential financiers and improving competition, would also increase the potential Internal Rate of Return (“IRR”) – for projects with similar commercial and operational characteristics, differing only in financial/corporate structure (tax equity without direct pay vs. direct pay without tax equity) – to the Sponsor while, at the same time, exposing them to different up- and down-side risks.
