Renewable Energy World Quotes Ed Zaelke on Wind Farms and Their Anniversaries
For its article “The Never Dull Life of a Wind Farm,” Renewable Energy World interviewed Akin Gump energy partner Ed Zaelke on wind farms in operation.
Zaelke, who has extensive experience in wind farm project development and financing, discussed the significance of the five-year anniversary as a threshold for wind farms, noting that the downside is that the moving parts are no longer warrantied. The upside, however, is that the project is likely no longer obligated for services with the manufacturer: “You can hire whoever you want to run your project. So you may see a transitional period when owners take control after five years—it’s typically more expensive if they have a manufacturer doing it.”
He noted that a more significant anniversary is the 10th, specifically for those companies that rely on the federal production tax credit (PTC), for that is when a project using the PTC is likely to buy out its tax equity partner. PTC rules require the tax benefits to accrue to the owner. He illustrated as follows: “It is as if you and I own a taco stand. I give you profits for first 10 years because you take all the PTC and depreciation. Then I take all the profits for 10 years. It’s still a 50:50 split of profits. But by giving you everything for the first 10 years, I allow you to get all tax benefits. At the end of year 10, I own everything.”
However, should the wind farm not perform as expected, the transaction’s time frame might get adjusted: “If the wind blows as it’s supposed to and if everything happens right when that 10-year production tax credit ends, you’ll hit a threshold return of 8 percent, or something like that. But if it doesn’t happen right then, I don’t take the taco stand back, you carry the profits a little bit longer until you meet a specified return. Sometimes that takes 12 years.”