3 Types of Renewable Energy Finance Structures
Going green has become more commonplace in the United States. According to Deloitte’s renewable energy industry analysis, the cost of renewable energy continues to decrease. Thanks to lower costs, more businesses across the nation can begin the transition to renewable energy use.
Types of Renewable Energy Finance Structures
A critical factor for any clean energy project is determining the best renewable energy finance option. Please keep reading to learn about various clean energy finance structures and what projects they benefit.
This is when a business sells a high-cost fixed asset, such as renewable energy equipment, for utility-scale projects. After the sale, the new owner leases the asset back to the seller for a pre-determined period of time.
There are several reasons why a business would want to use this structure. Mainly, the sale-leaseback structure allows a business to quickly generate capital by selling an asset without losing total access to that asset. Through the lease agreement, a business can continue to use an asset without the risks of owning the asset. Additionally, some sale-leaseback agreements allow the seller to buy back the asset after the lease ends.
The partnership flip is a beneficial renewable energy finance structure for projects that receive production tax credits. This structure is common for various solar energy projects.
A major benefit that a partnership flip offers a business is flexibility. Usually, the owner of a project is the one who claims tax benefits. However, that owner could find an investor and form a partnership, which allows both parties to own the project. This partnership allows flexibility by allowing project partners to share the project’s economic returns.
The inverted lease structure is a renewable energy finance method used to raise tax equity for a project. Solar and wind projects can benefit from using this structure. An inverted lease structure is appealing because it allows expense flexibility.
A business uses this structure to break up the tax credit and depreciation expense. As a result, the business could deal with each individually rather than taking them all on at once. The developer retains depreciation and passes through the investment tax credit to the tax equity investor.
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Extensia / AVANA Capital is a leading nationwide lender that specializes in renewable energy. Our mission is to serve business owners by providing fast and reliable financing. Partner with the expert team at AVANA Capital and receive a personalized renewable energy finance solution.