United States: U.S. Renewable Energy Financing And Regulatory Outlook 2015

Orrick and Clean Energy Pipeline have launched a series of reports dedicated to exploring investment opportunities and challenges in the global renewable energy sector. In the first issue, we analyzed the investment opportunities arising from the U.S. Department of Defense's major renewable energy procurement initiatives. In the second issue, we explored the evolving dynamics of the UK solar market as the industry moves towards the end of the Renewables Obligation subsidy regime. In the third issue, we focused on the challenges and opportunities in the U.S. energy storage market, with a specific focus on California's energy storage procurement program.

In this issue we reflect on the major trends in U.S. renewable energy financing and M&A in 2014 and anticipate how the market will evolve in the rest of 2015. We also analyze major regulatory developments in 2014 and look ahead to the important policy decisions on the agenda this year.

A busy year on the regulatory front

A number of important policies and regulations were either formulated or came into force in 2014, both at the Federal and State level. The most notable are outlined below:

Wind energy production tax credit (PTC) renewal: On December 16th, 2014, the Senate passed a tax extenders bill that reinstated the PTC until the end of 2014. Projects can qualify for a tax credit as long as they commenced construction by the end of 2014 and maintain a continuous program of work.

"In March 2015, the IRS released Notice 2015-25 which gives developers until the end of 2016 to complete wind projects without having to worry about the continuity requirements." Christopher Moore Partner in Orrick's Energy & Infrastructure group

This extension was greeted with dismay from the wind energy industry because it effectively only gave developers three weeks to satisfy the commencement of construction criteria needed to qualify. That said, wind installation volumes should be robust in 2015 as the vintage of projects that commenced construction during 2013 (following the previous extension of the PTC in late 2012) come online.

Because projects can satisfy the commencement of construction test by simply incurring 5% of costs before the deadline, some developers have been able to commence construction by the end of December for purposes of qualifying for PTC without actually commencing physical construction on the project site. As Christopher Moore, Partner in Orrick's Energy & Infrastructure group, explains, developers of these projects should be mindful of ensuring they satisfy PTC criteria related to maintaining a continuous program of work.

"The PTC extension in late 2012 required projects to start construction in 2013 and continue to be built," he said. "This created a lot of angst in the financing community because investors were not sure what continuing work meant and whether construction delays could result in you losing your PTC. Then the IRS released guidance saying that as long as you complete construction by the end of 2015 you are fine. But there was, until recently, a question with the extension at the end of last year because there was no guidance on whether you can satisfy the continuity requirements in the same way. However in March 2015, the IRS released Notice 2015-25 which gives developers until the end of 2016 to complete wind projects without having to worry about the continuity requirements."

Efforts are ongoing to secure a further extension, but have thus far proven unsuccessful. In late January 2015, an Amendment to legislation relating to the approval of the Keystone XL pipeline that would have extended the PTC for five years was defeated in the Senate by a vote of 51 to 47. Then, in early February 2015, President Obama proposed a permanent extension to the wind energy PTC and the solar energy ITC as part of his 2016 draft budget. However, this draft is still in its early stages and will be subject to intense negotiation between both parties.

California calls for 50% renewables target: Whatever happens at the Federal level, state policy will have an important role to play in incentivizing renewables. There are already encouraging signs in early 2015 that some states are taking significant strides to promote investment in renewable energy. In early January 2015, California Governor Jerry Brown called for the state to increase the percentage of electricity produced from renewable sources to 50% by 2030. Currently, utilities are required to source 33% of their electricity from renewables by 2020. A bill has been published that would make this target State law.

FERC proposes changes to priority grid access: In March 2015, FERC (the Federal Energy Regulatory Commission) issued a final rule relating to Generator Tie Lines. FERC established a five year safe harbor period during which the Tie Line owner has priority access to the line. Previously, owners of Tie Lines were required to make excess capacity available to third parties if they requested. "The Generator Tie Line rule will be an important development for sponsors," explained Adam Wenner, Energy & Infrastructure Partner at Orrick. "If people are building in remote areas, they might have to build 150 mile long lines to get the power to the grid. This issue wasn't necessarily holding back development, but it was always a risk. There have been some instances of third parties seeking access that resulted in big litigation cases."

Financing & investment

Investment in wind projects increase: Some $29.3 billion project finance was invested in U.S. renewable energy projects in 2014, in line with the $30.5 billion invested in 2013. There was a notable increase in investment in wind projects, following the release of guidance by the Internal Revenue Service in August 2014 that clarified the criteria for qualifying for the wind energy production tax credit - $7.1 billion project finance was allocated to wind projects in the second half of 2014, an 82% increase on the $3.9 billion invested in 2013.

Holdco loans growing in popularity: Looking ahead to 2015, one financing trend many expect to materialize is the growing use of back-leverage debt, otherwise known as holdco loans, which are not secured by the actual project but by the cash flow allocated to the sponsor's equity share. "Utility scale solar projects have traditionally utilized term debt, but this year, many sponsors are choosing to fund the projects during the operating phase with all equity (a combination of sponsor equity and funds provided by tax equity investors), at the project level," explained Mark Weitzel, Partner and Co-head of Orrick's Energy & Infrastructure group. "Many sponsors are then funding their own equity contributions through so-called 'back leverage' loans, where they borrow at an upper tier level, which is similar to a mezzanine product. The debt is not secured by the project, but by the sponsor's interest in the project company, without recourse to the sponsor itself. Investors like Ares Capital have been doing holdco deals like this for some time. It is a little riskier and is more like equity, but it has better returns."

Yieldco bandwagon rolls on: Yieldcos, publically traded investment funds that invest in operating renewable energy assets, continued to raise capital in 2014. Yieldcos secured $3.8 billion equity on the public markets in 2014, significantly more than the $1.1 billion raised in 2013, according to Clean Energy Pipeline. There are indications in early 2015 that more yieldcos will come to market. In February 2015 First Solar and SunPower announced they are in advanced negotiations to form a joint yieldco to which they will contribute a portfolio of solar generation assets. The rise of yieldcos is stimulating M&A activity. According to deals tracked by Clean Energy Pipeline, yieldcos acquired 3.8 GW of effective capacity (the capacity of the project multiplied by the stake acquired) in 2014, compared with 2.6 GW in 2013. The increase was due to more yieldcos coming to market and an increase in the size of acquisitions. For example, in November 2014, SunEdison and its yieldco vehicle TerraForm Power agreed to acquire First Wind Holdings for $2.4 billion (see box above).

"Existing yieldcos will continue to be strong acquisition vehicles," explained Mark Weitzel. "They made promises to the public to deliver a 3-5% cash yield every year, and the total return, including annual growth, is supposed to be much bigger. The only way to achieve this is to continually be in acquisition mode. SunEdison and Terraform have a very assertive program, as do NRG, Abengoa and NextEra. There will likely be more yieldcos in 2015. Three to five companies have made yieldco registrations. I would expect more to come out in the first half of the year, as long as the capital markets continue to be strong."

"The likes of Apple, Amazon, Facebook and Google have also committed to source 100% of their energy demand from renewable sources in the future. "

Corporates demonstrate strong appetite for renewables investment: Corporates ramped up their renewables investment activity in 2015 with the likes of Google, Microsoft, Ikea and Amazon all announcing investments or plans to source significant proportions of energy from renewable sources. Some corporates are investing in renewables to obtain long-term fixed prices for energy, while others are investing to enhance their green credentials or to take advantage of the tax benefits.

For example, in November 2014, Ikea acquired the 165 MW Cameron wind farm in Texas from Apex Clean Energy, its largest wind farm acquisition to date. Seven months earlier, it acquired the 98 MW Hoopeston wind farm in Illinois. The company plans to invest $1.7 billion in renewable energy projects in 2015 as part of plans to source 100% of energy consumption from renewable sources by 2020. The likes of Apple, Amazon, Facebook and Google have also committed to source 100% of their energy demand from renewable sources in the future.

"A lot of corporates such as IKEA, Walmart and Amazon are entering the market, while Google has been active for a while, and is becoming more active," explained Christopher Moore. "Some are just entering into PPAs while others are investing tax equity, so they are coming in different capacities and providing different sources of capital to the market."

SunEdison and TerraForm Power complete First Wind acquisition

In January 2015 SunEdison and its yieldco TerraForm Power completed the $2.4 billion acquisition of First Wind. It is one of the largest ever acquisitions by a yieldco. Key details of the transaction are outlined below:

  • TerraForm purchased 500 MW of operating wind capacity and 21 MW of operating solar capacity. The portfolio has an average counterparty credit rating of A-. The portfolio will add $74 million of cash available for distribution in 2015.
  • SunEdison acquired First Wind and certain of its subsidiaries, which provides it with an 8 GW pipeline of development-stage projects, of which 1.0 GW is eligible for the PTC.
  • TerraFrom and SunEdison secured $2.4 billion bridge financing to fund the acquisition, including $1.5 billion of non-recourse capital secured from six banks and First Reserve Infrastructure.
  • Following the acquisition, SunEdison raised its installation guidance 29% to 2.1-2.3 GW in 2015 and 2.8-3.0 GW in 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
21 Nov 2018, Seminar, New York, United States

“Big data” is changing our economy. It has allowed Amazon, Google, Facebook and many others to redesign traditional business models and to create new or improved products and services with greater utility for consumers and often at very little cost.

24 Nov 2018, Speaking Engagement, New York, United States

Each year, the New York Region of IFA hosts a panel and reception at the NYU Law School. This year’s panel will include a discussion of the TCJA international provisions.

27 Nov 2018, Speaking Engagement, New York, United States

Employment Managing Associates, Alexandra Stathpoulos and Alexandra Heifetz are presenting at the University of California, Berkeley School of Law’s FORM+FUND Series.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions