Israel’s Ashtrom Renewable Energy has sealed about $270m in financing for its 400MW Tierra Bonita PV array in West Texas, while announcing sale of the project’s federal production tax credits (PTCs) for an estimated value of $300m over 10 years, the first such deal publicly announced for solar.
The five banks providing project financing are BHI, the US operation of Bank Hapoalim Group, Bayerische Landesbank, ING Capital, Rabobank, and Société Générale.
"The financial closing of the Tierra Bonita project marks a significant milestone for Ashtrom Renewable Energy, demonstrating confidence in our strong capabilities to execute the development, planning, financing and construction of our first large-scale solar project in the US,” said CEO Yitsik Mermelstein.
Financing for the project was structured as a so-called green loan, adhering to voluntary market standards and guidelines aimed at promoting environmental sustainability.
Total investment in Sierra Bonita is $435m, he added. The project is under construction with commercial operation scheduled in the fourth quarter 2024. It was developed by Ashtrom and its local development partner, OnPeak Power.
CPS Energy, the country’s largest municipal electric utility, which serves Greater San Antonio, will buy 60% of the project’s electricity over 20 years. The balance will apparently be sold on a merchant basis.
Solar energy is a valuable commodity in ERCOT, which operates the main electric grid in Texas, the biggest energy state, as it is usually available during periods of peak summer demand as occurred this year.
Texas is the fastest growing US grid-scale solar market. On 1 July, ERCOT had about 17GW of installed capacity.
Turning to the tax credit transfer agreement, Mermelstein described it as “pioneering.” He said the PTCs were sold to a “leading US-based institutional entity” but provided no details.
In its press release, Ashtrom said the buyer was “highly rated” by Moody’s with Aa3, the agency’s fourth highest long-term corporate obligation rating.
Ashtrom did not disclose the all-cash price paid by the buyer for the PTCs. Project owners incentivise buyers to purchase the tax credits by offering them for less than 100 cents on the dollar who, in turn, apply them against their own federal tax obligations. The purchased credits cannot be resold.
The deal is an early mover for solar PTCs made possible by the landmark US climate law signed by President Joe Biden.
The Inflation Reduction Act’s transferability feature creates a market-based system whereby renewable energy owners such as Ashtrom who qualify for tax credits, but are unable to use them, can immediately sell them to an unrelated third-party investor,
Prior to the IRA, this was only possible through a tax equity partnership, which requires a lengthy diligence and negotiation process as well as significant transaction costs. Buying and selling federal tax credits generated by renewable energy projects was illegal.
Historically, grid-scale solar project sponsors rarely opted to qualify for PTCs, preferring investment tax credits worth up to 30% of capital investment available in the first year of commercial operation.
PTCs are now more attractive for increasingly efficient and productive solar projects, depending on their market location, technology, and other factors.
Under IRA, PTCs are worth $27.50/MWh for electricity generated and sent to the grid during its first decade of operation – if a project meets prevailing wage and apprenticeship requirements. This value is adjusted for inflation annually over 10 years.
The project can also be eligible for 10% energy community and domestic content bonuses of $2.75/MWh each. These can elevate PTC value to $33.00/MWh.
