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Published in: Wind, Press Releases
We have previously released research on the total impact of the production tax credits (PTCs) to the wind energy sector since inception. A total of $66 billion has been doled out to wind energy independent power producers (IPPs) since 1992. That investment by the US government has unlocked more than $750 billion in investment in wind energy the USA, including over $245 billion in CapEx on wind farm projects and the rest on factories to make components as well as services.
But there are some asset owners who have developed a dependence on PTCs. The independent power producers who have at least a gigawatt or more installed in the USA have a variety of approaches to how they leverage PTC revenue. There is a difference in asset profitability for companies like EDF who only see about 9% of their revenue come from PTC revenue. That compares to Enel who have an average across their portfolio of more than thirty nine percent of their revenue which comes from PTCs versus power purchase agreement (PPA) revenue.
If we re-sort this view to look at the companies who get the bulk of their revenue from PTCs, you'll quickly notice two things. The companies towards the top of the list with the highest dependence on PTC revenue also tend to have a very small portfolio. Additionally, we are looking at asset profitability, which we measure by determining how much net profit an asset owner will see per installed megawatt after they have seen a net positive return on capital of their individual projects.
There are only 3 out of the top 30 asset owners when ranked by % of PTC revenue vs total revenue who have a profitability that is at or above the market average of just around $1.1 million per MW. Those who are above the profitability average, are owners who tend to have a financial partner invested in the portfolio.
That’s the edge of having asset financial analytics at your disposal, because those financially focused asset owners are purely looking for a return on their investment, and they can choose to put their money anywhere.
Now if we re-sort this again and look at asset owners with the highest profitability, amongst the top 30 asset owners, most are operating a small portfolio and benefiting from a high PPA which eliminates their need for PTCs. You'll also notice that of any of the asset owners with at least 500 MW, almost all of them generate the bulk of their revenue from PPAs and are not dependent on PTCs. This is important for asset owners to know as well as asset investors who are looking to maximize their returns.
The conclusion we draw from this is that an asset portfolio that is overly dependent on PTCs is less likely to achieve the highest levels of profitability in the USA. Consistently high PPAs have more of an influence on long-term sustained asset profitability.
Looking at asset profitability can be informative and even fun if you have the right information at your disposal. It will guide you to make the right decisions that will increase your returns.
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