Below are soundbites from panelists at the Infocast Wind Power & Finance Investment Summit on February 28, 2017 in Rancho Bernardo, California.  The soundbites are organized by topic, rather than in chronological order, and were prepared without the benefit of a transcript or a recording.  The soundbites were edited for clarity.

Prospects for Tax Reform

 “Generally in Congress things take longer than they want them too.” – In House Lobbyist

“Tax reform won’t take shape until next year, and that is probably early.” – Regulatory Affairs Executive

“Amidst the unknowns, if you are not taking into account the uncertainty of the corporate tax rate, you are probably not getting it right.” – Regulatory Affairs Executive

“If tax reform is good for corporate America, then in the grand scheme it is good for us, given the [number of] corporate buyers” of wind power.  – CEO of Texas Wind Developer


Allocation of Tax Reform Risk in Transactions

“There is a risk that early deals that have to get done set a standard for the allocation of tax reform risk [between the tax equity investor and the developer] that is not sustainable.” – Renewable Energy Executive

“If corporate tax reform remains uncertain, it poses a risk of such a big swing in the economics [of a wind project] that no one is prepared to absorb that risk.”  – Executive from East Coast Utility

“Our [utility] commission has been okay with a clause in a power purchase agreement requiring renegotiation of the pricing for tax changes.  If there is an adverse tax change, we will be buying power at the higher rates in any event at that time.”  – Executive from Midwest Utility


Tax Economics

“Currently, the tax environment favors wind over solar.  With all of the bonus depreciation [we have had to claim], we aren’t tax efficient.  So we can’t use all of the [30% solar] investment tax credit in the first year.”  – Executive from East Coast Utility

“To own solar, we must normalize the [investment tax credit] (ITC), [which is not required for wind], so we do not get the full benefit for the ITC value upfront.”  – Executive from East Coast Utility


“We  are an [investor owned utility] (IOU).  We have enough tax base to monetize the [production tax credit] (PTC).  As an IOU, it is better for our shareholders if we own it [(i.e., wind projects)] versus [entering into] a PPA.” – Executive from Midwest Utility


Federal Policy Generally

“Policy is still a big driver for this industry.”  – In House Lobbyist

“Vigilance is important, but it also important to not freak out.”  – Transmission Advocate

“In order to be successful, this must be a bipartisan industry.  There are opportunities and threats.” – Transmission Advocate

“Keep calm and expect the unexpected.”  – Policy Institute Leader

“Let’s lay low with respect to the Administration.  Let’s not overreact to some of the provocations we hear.  Let’s focus on Congress.”  – CEO of Renewable Energy Company

“Pushing 100,000 jobs in the US wind industry.  Wind has over 500 manufacturing facilities in the US.” – In House Lobbyist

“The wind industry is a meaningful job and revenue creator in rural America.” – Regulatory Affairs Executive

“We have the hearts and minds of the American people and most of the people on the planet.  We can stop talking about the PTC and start talking about our jobs and clean power message.” – CEO of Renewable Energy Developer

“Infrastructure is behind healthcare repeal and tax reform [in the legislative agenda].”  –  In House Lobbyist

“Long distance transmission lines are tough assets to get built, but I think there will be more of a push to do that.  But the federal government’s role is limited in that.”  – Transmission Advocate

“The US-Mexico relationship is extensive, largely because of oil.  But the area that was poised to grow was cross-border transmission.  We may have to hit the pause button on that for a few years.  That was a huge opportunity.”  –  Policy Institute Leader

“Based on  the Clean Power Plan [that it is expected the Administration will revoke], a lot of utilities were trying to build renewables that would be part of their rate base. However, thirty states have renewable energy portfolio standards.  I don’t see any of those going away.  We are in the right place at the right time in terms of what we have to offer, but that might take a slightly different shape.” – CEO of Renewable Energy Developer

“Windows on tall buildings kill one billion birds a year.  Wind kills [only] about 600,000.”– CEO of Renewable Energy Developer


PTC Start of Construction Guidance

“The IRS start of construction guidance is the most important.”  – CEO of renewable energy company

[Explanation: This is guidance that permits a wind project that started construction in 2016, either by spending 5% of its cost or undertaking significant physical work, to qualify for a full $23 a megawatt hour PTC, so long as the project is placed in service (i.e., operational) by the end of 2020.[1]]

“2019 and 2020 will be very big years for wind.”  – Executive from East Coast Utility

“The PTC will keep things going for at least another four or five years.”  – Executive from Midwest Utility

“You will see few utilities making big moves into [owning wind projects] in the next few years until tax reform is sorted out.  So utilities are going to wait it out and hope they can take advantage of the PTC before the four year safe harbor runs out.”  – Executive from Midwest Utility

Curtailment Risk & Transmission

“There are some calls to restructure power purchase agreements (PPAs), so curtailment risk is spread.  But we haven’t seen anything that has popped up yet that makes a whole lot of sense.  A lot of curtailment is due to excess wind when there is no load.” – Executive from Midwest Utility

“You fix curtailment with transmission.”  – Executive from East Coast Utility

“The regional transmission organizations are putting out outrageous [projection numbers for electricity capacity] due to thousands of megawatts of production capacity [in the interconnection queue] that will never see the light of day” (i.e., will not be constructed). – Executive from East Coast Utility

“Eventually, we have to have queue reform for interconnection, so the projections of capacity do not fluctuate so wildly.” – Executive from Midwestern utility

“In the next five years, I don’t see a big bang of transmission lines being built.  The biggest obstacle is the need for commercial transactions to underpin it. – Transmission Advocate

“For curtailment, I think we have more flexibility if we own the project than if it is a PPA project.  For a PPA project, we have to pay for deemed supply that is not delivered” due to curtailment.   – Executive from East Coast Utility

“The PTC has given us some issues with curtailment that might be better as the PTC tapers off.”  – Executive from Midwest Utility

“Covariance risk means that when it is windy you are generating more electricity at a falling price.” – Managing Director of a Bank’s Commodities Desk


Corporate Power Purchase Agreements

“Corporates buy more wind [power] than utilities now.” – Transmission Advocate

“Green Peace is responsible for corporates buying green power.  They are pushing corporations by issuing their report card.”  – Director of Renewable Energy for an Information Technology Company

“You have the struggle inside the corporation as to what is driving signing the power purchase agreement – sustainability or price certainty.”  – Financial Advisor

“Some corporates can’t decide if their goal is sustainability or price protection.  If the goal is supporting sustainability, you have to make sure the power purchase agreement will be financeable, so the project gets built; otherwise, it is just a big waste of time.” – Managing Director from a Money Center Bank

“We want to be sure that our PPA provides long term certainty to a project, so the project gets built.  We call that ‘additionality’ – our PPA causes a project to be built that would not have otherwise.  If additionality is not a goal, we should just buy RECs” (i.e., renewable energy certificates).  – Director of Renewable Energy for a Retailer

“A lot of great corporates are out there buying power, but a lot of them don’t put their parent’s balance sheet behind the PPA; they use a subsidiary or a special purpose entity to sign the PPA and provide a limited guarantee from the parent.” – Managing Director from a Money Center Bank

“The first corporate PPAs were physical [(i.e., settled through physical delivery of the power)]; now corporate PPAs are financially settled.”  – Director of Renewable Energy for an Information Technology Company

“We are going to be transitioning [from a power purchase agreement form] to an ISDA contract” for purchasing power.  – Director of Renewable Energy for an Information Technology Company

“Corporates are in similar position to tax equity investors to make demands on sponsors.  Corporates will work to de-risk projects.”  – Corporate PPA Advisor

“Corporates are taking long-term price risk in the wholesale market,” when they sign a PPA. – Director of Renewable Energy for a Retailer

“There are three risks in an energy trade: market, shape and basis.  A corporate power buyer will take market and shape risk.  The project’s sponsor takes the basis risk.” – Director of Renewable Energy for a Retailer

[Explanation: “Shape risk” is the risk with respect to how much electricity will be produced when.  For instance, the risk that the greatest production will occur when the market is over-supplied with power relative to demand is shape risk.]

[Explanation: “Basis risk” in the context of a corporate PPA means that the project’s owner sells the power in at the price available at the node, but financially settles with the corporate “buyer” based on the price at the hub. For instance, the corporate PPA provides  that the corporate buyer contracts for power at $30 a MWh, so if the price at the hub is less than $30 a MWh, the corporate pays the project owner the difference and if the price at the hub is more than $30 MWh the project owner pays the corporate the difference.  What actually happens is the project owner sells the power for the spot price at the node.  Let’s say that price at the node is $29 a MWh on a particular day, so the project owner received $1 less than its contract price.  Then let’s say the price at the hub is $31 a MWh on the same day; therefore, the project owner actually owes the corporate $1.  So the project owner nets only $28, despite having signed a long term fixed contract for $30 a MWh.]

“Our approval chain does not necessarily understand these risks as electricity is not our core business.” – Director of Renewable Energy for a Retailer

“We have to take shape risk for financial accounting reasons.” – Director of Renewable Energy for a Retailer

“To avoid mark-to-market financial accounting, you must have no ‘known notional.’” – Managing Director of a Bank’s Commodities Desk

“Avoiding mark-to-market financial accounting sends corporates into the arms of all of these deplorable risks.” – Managing Director of a Bank’s Commodities Desk


Basis Risk in Corporate PPAs

 “The biggest risk is basis risk between the node and the hub.  Corporates are not taking basis risk.” – Financial Advisor

“If you are looking to hedge energy, it is smart to do that a liquid hub than a limited traded node.”  – Renewable Energy Advisor

“When a developer signs a PPA with a utility, the developer does not have to take basis risk.  But corporates make developers take basis risk.” – Financial Advisor

“Corporates have the power in the market to push basis risk across the table.”  – Director of Renewable Energy for an Information Technology Company

[Explanation: In a utility PPA, the utility takes title to the power at the node and pays based on what is delivered to the node.]

“Basis risk is far more problematic in Texas than other parts of the country.” – Managing Director from a Money Center Bank

“We have more faith in the forecast at the hub than we do at the node.  The forecast is going to be wrong; it is a question of how wrong.”  – Director of Renewable Energy for a Retailer

[1] See I.R.S. Notices 2016-31 and 2017-4.