WindEnergyUpdate speaks to Horizon Wind Energy CEO, Gabriel Alonso, to gain insight into Horizon’s financial strategy; to find out how the latest manufacturing tax credit scheme in the US will impact the wind turbine supply chain; and to gauge the impact of the BLM's recent ruling in Wyoming on existing and future wind farm developments.

By Rikki Stancich in Paris

Horizon Wind ushered in the New Year with the closure of a US$90 million institutional equity finance deal with JPM Capital Corporation, in exchange for a partial interest in its Iowa-based Lost Lakes wind farm.

However, a week later the US Bureau of Land Management issued in a new set of guidelines in the state of Wyoming that "officially precludes" wind farm development in 20 percent of the state. This could have a far-reaching impact on Horizon's existing and planned wind energy projects in Wyoming.

WindEnergyUpdate’s Rikki Stancich talks to Gabriel Alonso, Horizon Wind Energy’s CEO, to find out more about Horizon’s project finance strategy; the impact that Obama’s recovery Act clean energy manufacturing tax credits might have on the US turbine supply chain; what kind of impact the BLM's decision will have for Horizon Wind Energy and other wind developers; and what’s in store with regard to wind energy forecasting models.

WindEnergyUpdate: How will this latest institutional equity transaction with JPM improve the Lost Lake Wind Farm project’s economics?

Gabriel Alonso: When we look at these deals, we want to make them NPV positive for our shareholders.

In this case we were looking at two alternatives: We could have gone to the US government and, under the 1603 Program, got 30 percent of the investment back; or we could go to the market and we could source a third-party to help monetise the accelerated depreciation.

In the Lost Lakes case, the deal represented an NPV positive solution, versus the cash grant solution.

WindEnergyUpdate: This is the second institutional equity financing deal that EDP Renovaveis has secured with JPM Capital Corporation. Can you explain the strategy behind these deals?

Gabriel Alonso: In 2009, we secured a total of four equity financing deals: Two with JPM Capital Corporation, which were cash grant flip deals whereby JPM monetized the accelerated depreciation; and two from GE Financial Services, which were PTC deals.

When it comes to the actual project financing, we rely on our parent company, EDP Renovaveis, to finance the development and construction of the projects.

Then for local finance opportunities, such as tax benefits in the US, we rely on local financial institutions.

Where the US is offering tax benefits, we do not have the tax capacity to monetize this ourselves, so we need to go to a third-party to monetize these benefits.

WindEnergyUpdate: How are the ground rules for winning project finance changing in the US and what kind of options are wind project developers now looking at?

Gabriel Alonso: There are three separate programs, which have varying levels of relevancy for Horizon, as a wind energy developer. There is the Recovery Act’s 1603 program – the cash grant, where you 30 percent of investment back from the government.

Then you have the Loan Guarantee Programme, which provides guarantees to the financial institutions that are willing to finance renewable energy projects.

Now there is the renewable energy manufacturing tax credits scheme, designed to promote local manufacturing.

The 1603 program is the most important for us. The manufacturing tax credits will likely have a positive knock-on effect as well.

WindEnergyUpdate: To what extent will the manufacturing tax credit provide a boost to the wind energy sector in the US?

Gabriel Alonso: When you consider the cost of transporting many tonnes of equipment from Europe to the US, the idea of promoting local manufacturing is very promising – developers can look at saving a considerable amount of money.

The legislation will have a very positive effect on the sector if it attracts turbine suppliers to the US – it will help drive down the costs of manufacturing, which ultimately translates into lower energy prices for the end consumer.

WindEnergyUpdate: Can you comment on the Bureau of Land Management's recent environmental ruling in Wyoming insofar as wind farm projects are precluded in 20 percent of the state? What does it mean for Horizon’s existing proposed wind energy projects?

Gabriel Alonso: Our development team is looking into the details of how the BLM’s decision might affect existing and planned projects, but at this point in time I can’t make any comment.

WindEnergyUpdate: Horizon recently teamed up with the Argonne National Laboratory to conduct research into wind energy forecasting models. What has progress been like?

Gabriel Alonso: The business proposition of wind is positive on all fronts except for the intermittency of the resource, which is why the industry has been working for years on solutions to resolve this.

Currently Horizon has some 3000 MW of operating assets that are integrating new wind forecasting tools. Horizon is also working with several companies on this. 

The models are most certainly improving.