Insights into Encore and Brookfield's financing agreement for distributed energy solutions
In a significant move for the renewable energy sector, Encore Renewable Energy has secured a comprehensive financing solution worth $389 million from Brookfield Asset Management's infrastructure debt and platform. This financing structure, designed to scale as more projects are undertaken, marks a "one-stop shop" partnership between the two entities.
Brookfield's involvement extends beyond mere financing, with the company providing multiple forms of capital and collaborating in an equity-partner-like manner. The financing package includes a classic construction-to-term loan, a growth capital solution, a tax equity bridge, and a tax equity partnership.
Notably, Brookfield assumes both the provider and investor roles in the tax equity partnership and tax equity bridge loan parts of the deal. The tax equity bridge loan serves as a solution for future sales of investment tax credits, with partial repayment coming from the tax equity commitment's proceeds when projects are sold into the partnership.
The six-month process to finalise this complex deal indicates that such arrangements may not be common, as not many investors have the "wherewithal and sophistication" to provide multiple forms of capital from a single source.
Encore Renewable Energy, with its portfolio of geographically distributed projects different from utility-scale projects, has 75 upcoming projects in its pipeline, in addition to some planned acquisitions. Once development is complete, these projects will move on to the construction phase, which is covered by the construction-to-term loan part of the package.
The company plans to use the growth capital solution part of the financing package for projects at the development stage in its pipeline. Encore Renewable Energy's portfolio consists of grid-connected projects ranging from three to 10 megawatts, distributed across around a dozen states.
In 2023, Encore Renewable Energy secured an equity investment from Swiss asset manager SUSI Partners. As the company looks ahead to 2024, it is in search of non-dilutive funding to continue its growth trajectory.
This financing solution from Brookfield is structured to scale as more projects are taken on, providing a promising outlook for Encore Renewable Energy's future endeavours in the distributed generation solar sector. The deal offers Brookfield geographical diversification, repeat deal opportunities, and access to the relatively untapped potential of distributed generation solar. The financing structure, while an "obvious place for the market to go," is suitable only for larger and more sophisticated private credit funds.
