Wells Fargo, D.E. Shaw Close Tax Equity Deal For Solar-Storage Project

by Peter Maloney
APPA News
November 30, 2021

Units of Wells Fargo and D.E. Shaw this week closed on a tax equity financing for a solar-plus-storage project in McKinley County, N.M.

The Arroyo Solar and Storage project is a 300-megawatt (MW) solar array combined with a 150 MW, 600-megawatt hour (MWh) battery energy storage system that was originally developed by Centaurus Renewable Energy.

Centaurus closed on a $70 million construction bridge loan for the project from Voya Investment Management in late June. D. E. Shaw Renewable Investments (DESRI) acquired the project from Centaurus in September.

The first phase of the Arroyo project is expected to begin commercial operation in June 2022 with full operation expected in the fall of 2022.

Arroyo is currently under construction with efforts being made to hire workers locally and from the Navajo Nation. The project is expected to generate as many as 250 jobs during construction.

D. E. Shaw and Wells Fargo’s Renewable Energy & Environmental Finance group have now closed on the long-term tax equity financing for the project. The value of the deal was not disclosed.

A tax equity financing usually involves a financial entity taking an equity stake in the project company in return for revenue streams and tax credits generated by the project.

At the end of a period of time, the tax equity investment in the project usually reverts or is bought back by the original developer or the project sponsor.

For the Arroyo project, Wells Fargo is the tax equity investor, spokeswoman Trina Shepherd said via email. D.E. Shaw provided the cash equity and is the project sponsor and has an option to buy out the tax equity investor at the end of the deal.

Solar-plus-storage projects are eligible for investment tax credits (ITC) for both the solar and storage portions of a project, if certain criteria are met. The ITC percentage for projects beginning construction in 2021 or 2022 is 26 percent of the value of the project.

The Arroyo project is Wells Fargo’s first tax equity investment in a project with co-located battery storage. It is D.E. Shaw’s first solar project with co-located battery storage to enter construction and financing.

The Arroyo project has two offtake contracts with Public Service Company of New Mexico, one for the solar output and one for the output from the storage system. The combined output of the project will supply a portion of the replacement capacity needed to retire the 847-MW San Juan coal plant in San Juan County, N.M., which is scheduled to retire at the end of 2022.

Sundt Construction is building the Arroyo solar facility. ECI of Billings, Mont., provided the design for the substation and switchyard that will be built by its EPC Services subsidiary. Tesla will supply and commission its Megapack battery units for the facility, and New Mexico-based Affordable Solar Installation will construct the battery energy storage system. SOLV Energy and Tesla will provide ongoing operations and maintenance services to the facility once it is in operation.