Longroad Energy completed financing for its 331MW Prospero 2 solar PV project despite a difficult US tax equity market impacted by the Covid-19 pandemic, enabling construction to start in West Texas.
“It’s always tough finalising deals, but even more so in today’s challenging market,” said Peter Keel, chief financial officer of Boston-based Longroad. The $320m array is targeted for commercial start in second quarter 2021.
Prospero 2 has two 15-year virtual power purchase agreements (VPPAs) with DaVita, a leading kidney dialysis services provider, and a subsidiary of Zimmer Biomet, a medical device firm. Those arrangements cover part of the project's capacity with Longroad not providing additional details.
VPPAs allow corporate renewable buyers to commit to green energy without taking physical delivery of the electricity and are based on variable-priced cash flow and renewable energy certificates.
US Bank through a subsidiary is the sole tax equity investor in Prospero 2, the seventh renewables project tax equity deal that the bank has done with Longroad.
Various solar and wind developers are having trouble raising tax equity, particularly those with less capital or with perceived or real issues involving off-take creditworthiness. Some projects are getting pushed into 2021 or are on hold.
Banks are the main tax equity investors, but large load loss provisions because of Covid-19 financial impacts and tax credit carry-forwards are making it hard for them to forecast tax capacity both for the balance of 2020 and for next year.
This has led leading players such as US Bank to focus on investing tax equity mainly in projects owned by long-term partners such as Longroad with strong track records for the balance of this year.
Longroad will manage construction and operate Prospero 2 to be located adjacent to the 379MW Prospero 1 array in Andrews County, whose sole tax equity investor is Facebook.
Prospero 1, owned 50-50 by Longroad and AIP, investment manager for Danish pension funds PKA and PenSam, has a 12-year off-take with Shell Energy North America, among the largest US renewables deals with an oil company.
Longroad, a leading independent solar and wind developer, is a 2016 startup partly owned by a management team led by industry veteran CEO Paul Gaynor and also the New Zealand Superannuation Fund and Infratil, an infrastructure company based there.