Only the Strong Survive: Post PTC Landscape Means Major Changes for Wind Industry

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Stoel Rives attorney Ed Einowski was quoted at length by The Sindal Report regarding prospects for the U.S. wind market should the federal production credit (PTC) be allowed to expire at the end of this year. Wind developers appear headed to a record year in 2012, as they rush to qualify for the PTC, with as much as 12GW of new installed capacity. Experts predict a dramatic drop-off in wind installation beginning in 2013.

Einowski said diminished opportunities will add up to significant changes for the industry ahead. Among his predictions:

Well-capitalized developers best suited to survive

"Developers with cash flow from existing projects and existing services are in a better position to weather the coming slowness in the market. That includes developers with multiple capacity in terms of their ability to develop other resources."

Days of 'develop and flip' will come to an end

"[Develop and flip companies] really don't pay that much attention, in my experience, to the sale of the output of their product. There are a variety of reasons for that. But those companies are the most at risk. It will be increasingly difficult to make that model work."

Growing focus on adding value to the end customer

Utilities are looking for solutions in managing wind's intermittency. "Firming and shaping arrangements using other resources such as dispatchable plants or storage facilities are going to become an increasing part of our thinking in the wind industry."

Developers need to deal with transmission issues

Bidders for available power purchase contracts who are able to demonstrate they have a transmission path will have a competitive advantage. "Those that don't will not be on the short list. There is going to need to be a lot more expertise on the developer's part on the actual nuts and bolts of transmission."

"It is not cheap to play in the transmission game," Einowski added. "Again, that points to the larger, better capitalized developers or those developers who have access to that credit support who are going to be more successful."

Traditional project financing will be the new financing paradigm

Without the credit and the tax-motivated source of capital the PTC attracted, developers will have to look to more traditional project financing structures that include project-level borrowing. "Project lenders do prefer sponsors with large balance sheets," Einowski said. Wind producers will also have to have the ability to assess and access alternative sources of financing, such as pension funds or bonding issues, something larger companies with more resources may find easier to do.

"US wind developers in a shifting landscape" was published by The Sindal Report, September 2012.

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