Since the first wind deal utilizing a partnership in 2003 (also known as a “partnership flip,” a “pre-tax after-tax partnership,” or a “wind safe harbor partnership structure”), there has been a constant evolution of structures and a proliferation of financing alternatives for renewable energy transactions. In the last year alone, we have seen a wide variety of twists on the partnership flip structure, as well as the use of single-investor structures, leveraged leases, pass-through (or inverted) leases, back-leverage debt financings, securitizations, seller-financed loans, property assessed clean energy (PACE) financings, master limited partnerships (MLPs), real estate investment trusts (REITs), “yieldcos,” and financing from grants provided by the federal government (e.g., the Treasury Department, the Department of Energy, the Department of Defense, and the Department of Agriculture). While the development of some of these structures was driven by an issue unique to the type of asset or to the sponsor, equity investor, or lender, collectively, these structures have improved the cost of financing and the viability of the renewable energy space. Below is a thorough yet non-exhaustive overview of these structures and attendant issues in today’s renewable market.

The Partnership Flip -

A partnership flip is the standard, go-to structure in the renewable market for obvious reasons. It is understood, aligns the interests of the parties, and is flexible and reliable. It is understood that the economics and metrics are generally defined at the outset and are well tested. Generally, the equity investor’s return is expected over a defined period (10 years or less) and is comprised of cash and tax benefits. The developer’s/sponsor’s return is comprised mostly of cash and the renewable asset’s residual value (i.e., post flip and post expiration of the underlying offtake arrangement, if any). These economics align the interests of the parties in that they give the equity investor the confidence that, in the near term, it will recover its investment and the specified return. Meanwhile, the sponsor recovers most of its invested funds relatively quickly and remains incentivized to operate and maintain the facility at as high a level as possible so that the equity investor’s interest will “flip” and it realizes a return on the residual interest in the asset as soon as possible. The partnership flip is flexible in that it can be used with most assets and its terms can be tailored as appropriate and required by the parties. It is reliable, as it is almost always governed by Delaware law and, as such, is managed and operated subject to a well-defined set of statutes and precedents.