Columbia University Report: Repurposing Oil and Gas Financing for Renewable Project Development

Columbia University’s Center on Global Energy Policy published a report this week, Financing Solar and Wind Power: Insights from Oil and Gas, considering whether the financial tools used in the oil and gas industries for raising capital could serve as models for wind and solar projects.  The report is premised on the observation that while ample debt capital is available for utility-scale solar and wind with long-term power purchase agreements, raising equity to finance preconstruction development remains a significant challenge.  The report therefore considers whether financing tools used by the oil and gas industries to raise capital could provide insights toward the expansion of solar and wind.

The report explores the potential for solar and wind facilities to sell capacity into markets operated by independent system operators (ISOs).  Capacity markets are run by many ISOs in order to maintain an adequate resource reserve to meet projected demand and to ensure grid reliability.  Generators that expect to be available during a relevant commitment period may bid capacity into the market in return for capacity payments.  The report observes that while solar and wind resources can’t be dispatched on demand, they “may nevertheless qualify for capacity payments in some situations, in part because they are likely to be able to generate electricity during periods of peak demand.”  The report does caveat such capacity payments by noting that capacity may be discounted from nameplate and may require electric storage as well.

The report also suggests allowing developers to borrow against the expected value of wind and solar resources on a given project site to fund the cost of development, just as investors use reserve-based lending toward the exploration of oil and gas reserves by looking to the cash flows from the production and sale of the resource for repayment.  Finally, similar to the volumetric production payments often used in the oil and gas industry, renewable project developers could raise cash by selling to investors an Electricity Production Payment, or the right to receive a portion of the project’s future production, either as a number of kilowatt-hours per time period, or as a dollar value of electricity production.

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