How do you finance a typical project?
What drives the market in the U.S is the tax incentives. For example, I financed Nevada Solar One with tax investors and debt, and it’s the same thing for our wind projects. When you look at individual wind projects, typically the tax credits have driven the majority of the capital structure — say 50% to 60% — with traditional project debt being another 20%, and 20% in sponsored equity from Acciona.
How did you move from investment banking into being a CFO?
As an investment banker for Nevada Solar One, I was brought on as a financial advisor to work with the State of Nevada and come up with a structure that would build an almost $300 million project. My role was to look at the development and the contracts, and to produce something that the markets would invest in, up-front, as a 25-to-30-year asset [on their books]. Acciona came in and said they wanted to invest in the United States and were willing to launch. But from across the seas, they said to me, “you’re the person on the spot that helps give us comfort that the pieces, the market, and the tax investors are there.”
So I helped put together the whole package, with a bow on it. I prepared the due diligence for Acciona to come in as the equity investor and gave them the comfort that we were going to have the long-term takeout. As we closed that project, they continued to spend a lot of time in North America and decided to open an office in Chicago and continue to build the human capital infrastructure to leverage what they had. They became confident that U.S. financial investors would step up and invest in these projects. I was with Mesirow Financial and then I joined Acciona as their CFO as we were closing that project.
What exactly is a “tax-equity investment”?
An equity investment in which the return is tax-benefit-driven, rather than cash-driven. In the case of renewable energy investments, a tax-equity investment would be motivated primarily by the production tax credit or investment tax credit and accelerated depreciation. The tax-equity investor market in renewables has primarily been comprised of institutional equity investors, typically large financial institutions such as JPMorgan and GE Capital. They have a significant tax base to efficiently use the tax incentives that developers and owners of renewable projects, such as Acciona, lack.
An investment credit is the same concept as a tax-equity credit. They get a dollar-for-dollar reduction in their tax bill today by making this investment. Let’s use a round number: there’s a $100 million a tax credit for making a $300 million investment in a solar project. You can allocate it through a partnership.
How many partners does a typical project have?
Usually you have financial institutions like the JPMorgans or the Citibanks. The reason for that is that banks don’t have manufacturing or other depreciation [that they can claim for tax purposes]. They’re typically very profitable, but they have nothing to offset their profitability because they’re not an operator or manufacturer. That’s why the financial institutions have historically been tax investors in housing, renewable energy, and other things that our government has wanted to promote.