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«U.S. Department of Energy | Office of Indian Energy 1000 Independence Ave. SW, Washington DC 20585 | 202-586-1272 energy.gov/indianenergy | ...»

-- [ Page 1 ] --

Financing Opportunities

for Renewable Energy

Development in Alaska

K. Ardani, D. Hillman, and S. Busche

National Renewable Energy Laboratory

U.S. Department of Energy | Office of Indian Energy

1000 Independence Ave. SW, Washington DC 20585 | 202-586-1272

energy.gov/indianenergy | indianenergy@hq.doe.gov


This report was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States government or any agency thereof.

Available electronically at www.osti.gov/bridge Available for a processing fee to U.S. Department of Energy

and its contractors, in paper, from:

U.S. Department of Energy Office of Scientific and Technical Information P.O. Box 62 Oak Ridge, TN 37831-0062 phone: 865.576.8401 fax: 865.576.5728 email: reports@adonis.osti.gov

Available for sale to the public, in paper, from:

U.S. Department of Commerce National Technical Information Service 5285 Port Royal Road Springfield, VA 22161 phone: 800.553.6847 fax: 703.605.6900 email: orders@ntis.fedworld.gov online ordering: www.ntis.gov/ordering.htm energy.gov/indianenergy | indianenergy@hq.doe.gov DOE/IE-0014 • April 2013 Printed with a renewable-source ink on paper containing at least 50% wastepaper, including 10% post consumer waste.

ii Financing Opportunities for Renewable Energy Development in Alaska Acknowledgments This report is made possible by and at the direction of the U.S. Department of Energy (DOE) Office of Indian Energy. The National Renewable Energy Laboratory (NREL) would like to thank our colleagues at NREL who reviewed this report for accuracy: Dan Beckley, Elizabeth Doris, Brian Hirsch, Michael Mendolsohn, Anthony Lopez, and Paul Schwabe. We would also like to thank our external partners at the DOE Office of Indian Energy, who provided insights throughout the report’s development: Director Tracey LeBeau and Deputy Director Pilar Thomas. Finally, we would like to thank Rachel Sullivan and Karen Petersen with the NREL Communications Office for providing editorial support.

About the DOE Office of Indian Energy The DOE Office of Indian Energy was established by Congress to provide federally recognized Tribes and Alaska Native entities with technical and financial assistance to encourage, facilitate, and accelerate energy and energy infrastructure development in Indian Country.

In direct response to the requests of Tribes and Alaska Native villages, the DOE Office of Indian Energy has designed key programs to supply tribal leaders and their staffs with the knowledge

needed to make informed energy decisions—decisions with the power to help:

• Stabilize energy costs

• Enhance energy security

• Strengthen tribal energy infrastructure

• Promote tribal self-determination.

By providing reliable, accurate information, quality training, and expert technical assistance, the DOE Office of Indian Energy seeks to empower Tribes with resources, skills, and analytical tools that bolster decision making and increase capacity to advance the next generation of energy development in Indian Country.

–  –  –

List of Abbreviations and Acronyms AEA Alaska Energy Authority AIDEA Alaska Industrial Development Export Authority ANC Alaska Native corporation AREF Alaska Renewable Energy Grant Fund ARRA American Recovery and Reinvestment Act ASSETS Alaska Sustainable Strategy for Energy Transmission and Supply CCAP Coastal Community Action Program CDE community development entity CDFI Community Development Financial Institutions (Fund)

–  –  –

CIRI Cook Inlet Region Incorporated CSP concentrating solar power DNI direct normal irradiance DOE U.S. Department of Energy DSIRE Database of State Incentives for Renewables and Efficiency EERE U.S. Department of Energy Office of Energy Efficiency and Renewable Energy

–  –  –

ITC Investment Tax Credit MACRS Modified Accelerated Cost Recovery System MSW municipal solid waste NEG net excess generation NMTC New Market Tax Credit NREL National Renewable Energy Laboratory PPA power purchase agreement

–  –  –

QECB Qualified Energy Conservation Bonds REAP Rural Energy for America Program REC renewable energy credit RPS renewable portfolio standard SBA Small Business Administration SPE special purpose entity USDA U.S. Department of Agriculture USDA-RD U.S. Department of Agriculture Rural Development

–  –  –

Glossary of Commonly Used Financing Terms Bridge Loan A short-term loan used until permanent financing is secured; enables borrower to meet current obligations by providing immediate cash flow.

Commercial-Scale Project A stand-alone project with a primary purpose of generating revenue resulting in financial selfsufficiency.

Community-Scale Project Multiple buildings; campuses with a primary purpose of offsetting community energy costs to promote energy self-sufficiency.

Developer Organizes the various parties involved in the project and typically controls and makes an equity investment in the company or other entity that owns the project.

Flip Renewable energy development partnership structure in which a nontaxable entity partners with a taxable entity to capture tax credit benefits of renewable energy development.

Investment Tax Credit Reduces federal income taxes for qualified tax-paying owners based on capital investment in renewable energy projects and is earned when equipment is placed in service.

Landowner/Site Owner Legal and/or beneficial owner of land and natural resources.

Lease Pass-Through Renewable energy financing strategy in which multiple parties participate. The project is majority owned by a tax-equity partner to capture benefits and pass through to nontaxable entity owner.

Lender A single or group of financial institutions that provide a loan to the project company to develop and construct the project and that take a security interest in all of the project assets.

Modified Accelerated Cost Recovery System Enables certain investments in wind, geothermal, and solar technologies to be recovered over a 5year schedule in lieu of the standard life of the asset; improves the economic viability of a project by reducing tax liability in the initial years of production.

vi Financing Opportunities for Renewable Energy Development in Alaska Net Metering Billing system that provides customers with credit for electricity generated from distributed resources (such as photovoltaic energy); host often receives the full retail value for the excess electricity generated by the system that is fed back to the utility grid.

New Market Tax Credit Allows individual and corporate taxpayers to receive a federal income tax credit for making qualified equity investments in qualified community development entities (CDEs). CDEs must be designated by the Community Development Financial Institutions (CDFI) Fund, which is a division of the U.S.

Department of the Treasury. The NMTC equals 39% of the investment and is claimed over a 7-year period.

Off-taker Purchaser of the electricity from a renewable energy system. For a facility-scale project, it is often the building location where the system is located. For a community-scale project, it is often the community supporting the development. For a commercial-scale project, it can be any party purchasing the electricity, typically a utility.

Operator Provider of the day-to-day operations and maintenance of the project.

Photovoltaic A solar resource converted to electricity.

Private Equity Direct investment into private companies by funds and investors.

Production Tax Credit A federal tax incentive for renewable energy based on the electrical output of the project in kilowatthours.

Sale Leaseback Renewable energy project financing structure that allows for multiple participants in a development structure. Allows for capture of tax credit value for nontaxable entities.

Tax-Equity Partner A project development partner with a tax appetite that can take advantage of existing tax credits for renewable energy projects at the federal and state level.

–  –  –

Executive Summary This paper provides an overview of existing and potential financing structures for renewable energy project development in Alaska with a focus on four primary sources of project funding: government financed or supported (the most commonly used structure in Alaska today), developer equity capital, commercial debt, and third-party tax-equity investment. While privately funded options currently have limited application in Alaska, their implementation is theoretically possible based on successful execution in similar circumstances elsewhere. This paper concludes that while tax status is a key consideration in determining appropriate financing structure, there are opportunities for both taxable and tax-exempt entities to participate in renewable energy project development.

viii Financing Opportunities for Renewable Energy Development in Alaska Table of Contents Acknowledgments

About the DOE Office of Indian Energy

List of Abbreviations and Acronyms

Glossary of Commonly Used Financing Terms

Executive Summary

Table of Contents

List of Figures

List of Tables

1. Introduction

2. Technical Potential

3. Federal Production and Investment Tax Credits

3.1 Tax Credit Eligibility

4. State Policy Context for Renewable Energy Development

5. Publicly Sponsored Finance Programs for Taxable and Nontaxable Entities

6. Financing Options for Taxable Entities

6.1 Project Financing

6.2 Case Study: Fire Island Wind

7. Tax-Equity Partnerships

8. Conclusion

Appendix A: Methodology for Technical Potential for Renewable Energy in Alaska




Concentrating Solar Power

Solar PV


Appendix B: Government-Sponsored Loan Programs in Detail


ix Financing Opportunities for Renewable Energy Development in Alaska List of Figures Figure 1. Levels of renewable energy potential defined

Figure 2. ANC boundaries for technical potential analysis

Figure 3. Capital financing sources with tax-equity investment structures

Figure 4. Example of partnership flip structure

Figure 5. Example of sale-leaseback structure

Figure 6. Example of a pass-through lease structure

List of Tables Table 1. Technical Potential for Various Renewable Energy Resources on Alaska Native Corporation Lands

Table 2. Production Tax Credit Expiration Schedule and Value

Table 3. Investment Tax Credit Expiration Schedule and Value

Table 4. Fire Island Wind Estimated Project Cost (phases 1, 2, and 3)

Table 5. Fire Island Wind Estimated Project Financing (phases 1, 2, and 3)

Table 6. Government-Sponsored Loan Programs

Table 7. Other Government-Sponsored Programs

Table 8. Government-Sponsored Grants

x Financing Opportunities for Renewable Energy Development in Alaska

1. Introduction Alaska’s Native villages and corporations are uniquely positioned to take advantage of renewable energy development opportunities given the large amount of land and energy resources they control.

High retail electricity rates, 1 an abundance of renewable energy resources, and dependence upon diesel generators within remote communities (Energy Information Administration [EIA] 2012c) make renewable energy development attractive. In order to leverage these favorable market conditions and realize Alaska’s potential for renewable energy generation, use of both government-sponsored and private financing opportunities is necessary. The purpose of this paper is to provide an introduction to a variety of ways in which tribal and corporate entities may participate in the development of renewable energy projects in Alaska. While not intended to be a comprehensive guide to the detailed nuances of renewable energy financing, this paper provides an introduction to the topic and directs readers to further resources and more detailed information on the subject matter contained herein.

The remainder of this report is structured as follows:

Section 2 provides background on the scale of the potential for renewable energy development in Alaska. This resource-based overview illustrates that although current development is limited, there is a large opportunity for reaping the benefits of renewable energy if financing and other barriers can be overcome. A detailed methodology for determination of technical potential in Alaska is listed in Appendix A.

Section 3 provides an overview of two federal tax incentives, the capturing of which is often critical to establishing viable economics for project development. These incentives are relevant to both taxable and nontaxable entities as private financing structures have arisen to facilitate capturing of the benefits of the tax incentives (and therefore favorable project economics) by nontaxable entities (further described in Section 7).

Section 4 provides an understanding of the state energy policy context, which is critical as these policies create the structure in which renewable energy financing structures exist.

Section 5 provides an overview of the federal and state publicly funded financing options in Alaska, which are the most commonly used mechanisms for project development to date. Appendix B contains a comprehensive table of government-sponsored financing programs.

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