This tells a story of a US wind industry that is looking to make good on the potential that firms see in the Biden administration’s Inflation Reduction Act, but is faced with obstacles caused by the global economy, grid buildout delays, and rising debt costs. In this article, we share seven of the key takeaways from Financing Wind North America.
To read the full report, which was written by my colleague Cristina Brooks, you can get it here: https://www.awordaboutwind.com/reports/financing-wind-north-america-event-summary
- US wind is cautious despite Biden’s policy progress: The wind industry has received a major boost from the passage of the Inflation Reduction Act (IRA), as developers seek to accelerate projects.
- However, speakers at the conference were cautious about the impacts of inflation on costs at wind projects, which has reversed longstanding trends of falling costs. The industry will need to balance excitement and caution in the months ahead.
- Inflation is contributing to increased debt costs: Last year, lenders were flush with liquidity and could offer debt at very competitive rates.
- That is no longer the case now that central banks are hiking interest rates to keep down inflation and as the war in Ukraine has triggered energy price rises. Speakers said the result is that the cost of capital on new funding deals has risen, and lenders are under increased pressure to renegotiate existing deals.
- Transferability poised to open the tax equity market: One exciting aspect of the IRA is the introduction of the concept of ‘transferability’ for tax credits. It may be a technical change, but this has the potential to open up the tax equity market to new companies and innovative deal structures. You can read about this in our recent analysis piece.
- Inflation sparks demand for flexibility in PPAs: The impact of inflation on development and construction costs is forcing owners to pass on these rises to energy buyers with more expensive power purchase agreements (PPAs). Our speakers revealed some PPA off-takers have been open to negotiation as they are under pressure to achieve their own decarbonisation targets. Energy buyers may also be open to allowing flexibility over future PPA pricing in contracts.
- Supply chain concerns temper offshore optimism: US offshore wind has picked up pace in the last year as the industry seeks to help achieve the Biden administration's target of 30GW installed offshore wind by 2030.
- However, there was concern at Financing Wind North America that the lack of a plan for the supply chain would affect how fast projects can be built; and developers have warned that entire pipelines of projects can only secure funding with guarantees from suppliers that factories will be there. The lack of installed projects in US waters is also a concern for would-be investors.
- Developers struggle to win interconnection approvals: Speakers warned it is more difficult than ever to secure grid interconnection approvals for wind projects in the US, due to delays caused by Independent System Operators that manage the grids. This is forcing some developers to make speculative interconnection applications to shortcut a process that it beset by long waits and mysterious pricing.
- As a result, developers have become more cautious about where they locate projects so they can keep interconnection costs low.
- Wind-to-hydrogen sparks interest from investors: Our speakers said that opportunities are opening up to invest in green hydrogen and other green fuel projects. The US market is set to gain a boost with planned tax credit support under the IRA.
- Speakers added that lenders may be open to financing linked wind-to-hydrogen projects, but developers would likely prefer to develop wind projects separately. This is set to evolve as the market takes shape.