CERTs Coordinator, Joel Haskard, recently connected with Bob Olson, a tax attorney in Minnesota, about an intriguing public-private model for wind development. Many of the questions posed here relate to Bob’s recent document, Public/Private Wind Turbine Project: Financial Alternatives, outlining this specific model.
Thanks to John Farrell at Institute for Local Self-Reliance for helping to craft some of these questions.
The Interview:
Joel: You have presented us with a model for public-private ownership of energy projects—in this example wind development. What led you to this particular model?
Bob: While promoting wind energy over the last five or six years as Chairman of the American Sustainable Energy Council and as a congressional candidate, bank owner, and tax and business lawyer, I worked with several universities, municipalities, tribes, foundations, and counties in basic design of their wind projects. After much research and planning, this model was created. It utilizes the 2009 Stimulus Actʼs tax characteristics, but the same concept can be applied with the tax incentives of the prior laws, also.
Joel: What makes this model unique? How does this contrast with a traditional flip model?
Bob: This model is unique primarily in that it utilizes the time honored tradition of “planned charitable giving” and its attendant tax advantages. This is very similar to the traditional flip model but for the charitable contribution and the non-traditional tax-exempt status of the flip recipient.
Joel: Is there a cost for capital similar to the cost for debt?
Bob: I know the investor gets the green tags, but without a cost for capital you assume that an investor is altruistic and has nowhere else to put their money to work. There is, of course, always a cost for capital. We have analyzed this in more detailed spreadsheets. No altruism is necessary here! The private party invests—in a typical single turbine project—roughly $700,000, and within six years is done with the project and has received roughly $2,400,000 in after-tax return!
Joel: Is there a concern for a county in buying or receiving a project that still has $2.1 million in debt service payments?
Bob: This model assumes that the private party also gives one million dollars of accumulated cash to the non-profit entity which it can use to pay down the debt or use as a cash reserve.
Joel: With this model is it possible to get a 20-year loan as opposed to a 10-year loan?
Bob: Generally, yes. As always, the credit worthiness of the parties and the particular loan program selected will be determinative.
Joel: Do you know of anyone currently using this model to develop a wind project?
Bob: Only one party (a large political entity), which recently issued an RFP after very careful investigation with us of the alternatives.
Joel: Does this model allow, for example, a metro county to locate their project in the countryside where the wind resource is better? Also, could the ownership and the location of the project cross state lines?
Bob: Yes. And yes.
Joel: Am I correct that the incentives that you are bundling (like the 2009 stimulus dollars) are all federal incentives? Does that give this model a limited shelf life?
Bob: The spreadsheets assume that no state incentives are utilized, only federal incentives. States other than Minnesota, of course, have much greater incentives that generally could be utilized but are not represented here. This model also works without the 2009 federal tax incentives but the benefits are lessened or delayed somewhat. This gives an incentive for projects to spend roughly 5% of project costs before December 31, 2010.
Joel: What is your opinion about Clean Renewable Energy Bonds (CREBs) and could this model work in tandem with this program?
Bob: CREBs are very, very valuable assets in developing these projects. I recently learned of several communities letting their authority to issue CREBs expire. What a waste! This model can work with CREBs, but must be structured carefully to fully comply with the intricate tax and other requirements.
Bob Olson is a tax attorney in Minnesota and the majority owner and chairman of St. Stephen State Bank. In 2004, he founded the American Sustainable Energy Council, a nonprofit that focuses on renewable energy policy and projects.
If you would like more information about Bob’s wind energy model, you can contact him at 612-349-5271 or rao@robertaolson.net.
