Law360 | February.16.2012
In this interview with San Francisco energy and infrastructure partner Mark Weitzel, he discusses his career and the renewable energy market.
Q: What aspects of your practice area are in need of reform and why?
A: Having worked on Ivanpah, one of the largest renewable energy projects, has made it clear to me the need for finding better ways of bringing investment capital to small- and medium-sized renewable energy projects, and to portfolios of residential solar installations.
Financing wind, solar, geothermal, biofuels and other renewable energy-based electrical generating facilities can be quite expensive. Other countries, especially in Europe, have chosen to promote the development of these facilities by enacting "feed-in tariff" rules, under which the government pays a relatively high price to buy the electricity. With that revenue source assured, investors and lenders provide the needed capital to build the facilities, knowing their investment will be repaid.
Until very recently, the U.S. has gone down a very different road, choosing to promote the development of these facilities largely through its tax code, by providing tax benefits to owners of these facilities. Since the developers rarely have enough tax appetite fully to use these tax benefits, they bring in "tax equity investors," who make an investment in the project in exchange for being allocated virtually all of the tax benefits.
Most of these tax equity investors are large financial institutions, and the resulting deal structures are very complex, requiring significant time and expense. We are now working with our clients to find more efficient ways to bring needed investment to smaller projects, including reviewing feed-in tariff programs, and working toward standardized agreements to reduce costs.
Another exciting area to watch is the potential for using securitization techniques to raise capital markets financing for large pools of residential solar projects. Under these programs, residential energy portfolios are looked at in much the same manner as credit card or mortgage receivables, which can be debt financed on the strength of the overall portfolio, rather than on a project-by-project basis. My securitization colleagues are working closely with our project finance lawyers to help structure these deals — we expect to see the first of these go to market later this year.