In this video, we look at project financial structuring, which can get quite complicated. With financial structuring, we structure a project organization to optimize financing options. This can be owner financed and operated, owner-operated and debt-financed, a sale-leaseback, special-purpose corporation can be formed, or we might engage in a partnership tax flip. Let's first look at owner financing. This is where the project owner finances, develops and operates the entire renewable energy project. The project owner could be a utility or a large corporation, or if it's a small project, a small project developer. The owner self finances the entire project and the owner is responsible for developing the project. The owner is responsible for ongoing operations and receives operating revenues from the project. All net revenues accrue to the owner. The owner receives renewable energy credits and receives tax credits available to the owner. So this is the simplest way to finance a project. Next, let's look at an owner-operated with debt financing. The owner develops a project with a loan and then operates through renewable energy project. The project owner could be a utility large corporation or mid-sized project developer as before. But here we have a lender or a bank or some other lender provides a loan to finance the project. Project development is financed with a loan, but the owner remains responsible for developing the project. Project operations are the same, the owner is responsible for ongoing operations, but the owner makes periodic debt payments. Again, the benefits are that all net revenues accrue to the owner, the owner receives renewable energy credits, and receives tax credits that may be available. Now let's look at sales leaseback arrangements where the project owner, leases high-cost fixed assets from a lessor. The project owner remains a utility or large corporation, or perhaps a mid-size project developer. So lessor owns high costs, fixed renewable energy assets, such as generating equipment, entire plants, high-cost assets. The owner leases the equipment from the lessor. Project development is financed by the owner and the owner is responsible for developing the project as before. With project operations, the owner is responsible for ongoing operations and the owner pays the lessor for the use of the assets. The benefits, again, are that all the net revenues accrue to the owner, the owner receives renewable energy credits and tax incentives that may be available. Perhaps the most common way of financing large renewable energy projects is through the use of a special purpose company. Here the project is owned by multiple investors through this special purpose company. Project equity owners can be utilities, developers, investors, vendors, and others, and the provided funds are used to develop the project. The special purpose company, or SPC, is a standalone limited liability company. It exists separate from the owners. Budget development is financed and developed by the SPC and ongoing operations are the responsibility of the SPC. It continues to exist after the project is finished or constructed rather. The benefits are several. Net revenues are shared by the SPC owners. The SPC distributes renewable energy credits and tax benefits to the owners and the SPC shields owners from liability. What this means is that if the SPC fails, if the project fails and goes broke, for instance, the owners are not responsible for the debts of the company. They're shielded, their liability is limited. This makes it very attractive for investors. The final method we'll examine for financing large renewable energy projects is that partnership tax flip. It's essentially the SPC ownership model, but the ownership flips after 5-7 years. Project equity owners remain utilities, developers and vendors, but now include tax investors. These tax investors help to provide funds for the project development and the ownership flips from tax investors to equity investors once tax benefits expire in usually 5-7 years. A tax investor has an appetite for tax credits. That is probably a company. It has large profits on which they pay taxes. But by investing in the renewable energy project, they can accrue the tax breaks, the tax benefits, the tax credits, from the project to apply to their other tax liabilities. Project development remains financed and developed by the SPC. Project operations are also managed typically by the SPC. Finally, the benefits are that we can attract tax investors on favorable terms for investing. Direct investors reduce their taxes elsewhere, but otherwise, it's the same as an SPC organization except for this fancy tax flip. In summary, we want to structure our project to optimize financing options. We could choose to be owner financed and operated or owner-operated with debt financing. We might select some sales leaseback arrangement. Or in larger projects, we almost certainly will form a special-purpose corporation or SPC. In some situations, we may engage with a partnership tax flip if that's attractive, or some combination of the above. Organizations can get very creative when it comes to putting together the best financial structure. That concludes this series of videos on financing projects. In the next set of videos, we'll start looking at how do you actually execute a project once all of this preliminary work has been accomplished. We'll see you there.
