Community wind farms stall with lending holdups
State and community leaders may be ready to build small wind farms on public land, but lenders are still determining if and how to finance such projects.
A year after the collapse of the equity financing market for large wind farms, state leaders and private developers are eyeing community-scale projects as an opportunity to grow the number of turbines in the state. But while communities may be good candidates for wind projects — with a strong, steady demand for electricity and the ability to raise taxes as collateral — just who will ultimately back these developments is still an unknown.
“As with everything, economies of scale are important,” said Charles Eisenberg, a principal heading up development for Woburn energy developer Solaya Energy Inc. “There’s a level of certainty and comfort at the community scale that makes up the lack of scale, but there’s nothing to underwrite yet because we’re still trying to guess at the (financial incentives).”
Unlike large wind projects consisting of dozens or hundreds of wind turbines, community wind projects often involve a handful of turbines placed on public property. These turbines produce power that is purchased by the municipality through a power purchase agreement with the wind developer. The community can buy cheaper power than from the utility, and developers can generate a profit from a net metering law that requires utilities to buy power from the turbines at a set rate.
But since community wind projects do not generate as many tax credits or renewable energy certificates, developers are less able to use tax equity to finance projects and are more dependent on debt financing. Yet few banks are ready to provide that debt, at least right now.
TD Bank is one of the few local institutions looking into financing wind projects in the $20 million to $25 million range, senior commercial lending officer Meg McIsaac said. She said the bank sees community wind as a tremendous market opportunity but is taking a cautious approach.
Part of the problem is determining how to structure the financing, whether it’s a shrunken-down version of traditional project financing or a new creation, she said.
Another bank active in community renewable energy finance is PeoplesBank in Holyoke, which has a $22.5 million renewable energy portfolio, including $14 million in wind projects in western and central Massachusetts.
Insiders say other banks will likely get involved in projects once the dust settles from problems in the commercial real estate sector, the types of loans most similar to renewable loans. Possible candidates include Citizens Financial Group and Sovereign Bank, or large community banks active in real estate and public finance such as Rockland Trust and Eastern Bank. Officials at those institutions declined to comment.
State agencies are also putting together programs through the Renewable Energy Trust to help finance the pre-development and construction stages of projects.
“The economics of wind are often OK, the challenge is really the development cycle — it’s all risk capital upfront,” said Phil Giudice, Department of Energy Resources commissioner and chairman of the trust’s governing board.
Solaya Energy’s Eisenberg said that for all the state’s efforts, it is a matter of time before banks become fully comfortable with the business and regulatory model.
By Jackie Noblett
Mass High Tech
Tags: Wind power, Wind energy
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