Renewable Energy Finance: Enel, Birch Creek secure tax equity investments from Nestlé and Foss & Co for solar projects in West Texas

Enel North America has partnered with Nestlé to be the sole tax equity investor for its 208 MWdc Ganado solar-plus-storage project. Additionally, Nestlé will purchase 100% of the renewable electricity certificates (RECs) generated by the project, estimated to average 333,000 MWh/year for a period of 15 years. The move will contribute to Nestlé’s goal of sourcing 100% renewable electricity across its sites globally by 2025. The Ganado solar-plus-storage project is expected to be operational in Q2 2023. The move marks the second major tax equity investment for Nestlé in Texas, following its financing of 7x Energy’s 250 MW Taygete 1 solar project - also in West Texas - Dec’20. Similar to the ganadao financing, the transaction involved Nestlé purchasing all the RECs generated by the project for a period of 15 years.

In a separate agreement, Missouri-based Birch Creek has partnered with Foss & Co for a $130mn tax equity investment in the 258 MW Beech solar project. Foss & Co has hailed the project as the largest solar plant in its portfolio. One of the longest-running sponsor syndicators in the US, Foss announced in Jun’22 that it has reached $1bn of tax credits under management. 

In a recent report, veteran financial advisor Norton Rose Fulbright highlighted that 2022 witnessed $18-19bn of tax equity investments in 2022, spit 60:40 in the ratio of wind and solar projects. The 2022 cumulative total was down from $20bn in 2021, mirroring a decrease in new wind and solar builds in 2022, compared to the previous year. Several executives from the company highlighted that ~$20bn or so is the maximum capacity that the market will see from the traditional base of tax equity investors. However, entry of companies looking to tap the benefits of tax credits as outlined in the recently approved IRA, including Starbucks and Nestlé, could lead to a 2-2.5X surge in influx of capital in the next 2-3 years, compared with 2022. Meanwhile, the advisor called out some of the recent challenges posing as headwinds to the tax equity investment appetite, such as transmission. “We require a signed large generator interconnection agreement (LGIA) before committing to a deal. Then there’s negative pricing for selling power, basis risk in power purchase arrangements (PPAs) and curtailment. There are significant concerns in the property and casualty insurance arena. Hail insurance is front of mind for us. We had catastrophic damage to more than one solar project,” the company stated.

The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.