Excelsior Energy Capital-backed Lydian Energy is currently in discussions with lenders and tax credit investors to finance construction of a 1.5 GW solar and battery energy storage system (BESS) project portfolio acquired from Hanwha Renewables, according to executives.

The executives expect on-site construction on the four projects in the Atlas North portfolio to begin in the second half of this year, and the developer is currently working to secure tax credit and other financing sources to support construction of the projects, Lydian CEO Emre Ersenkal told this news service.

“With every late-stage project that we’re developing, we’re in discussions with tax credit investors and lenders about financing, and the Atlas portfolio is certainly included in that,” Ersenkal said.

Lydian announced the acquisition of the Atlas North portfolio from Hanwha last month. The portfolio includes four projects in California, comprising 1 GW of solar generation capacity and 450 MW/1,800 MWh battery storage capacity. Akin Gump served as legal advisor to Lydian on the deal. The Washington DC-based developer and independent power producer (IPP) did not rely on outside financial advisors for the transaction, Ersenkal said.

All four of the projects are safe harbored for investment and production tax credits (ITC and PTCs) that are subject to an accelerated sunset for wind and solar projects that don’t begin construction by 4 July of this year, Ersenkal said.

Under guidance released by the IRS last year, wind and solar projects can satisfy the “start of construction” requirement for safe harboring under the pre-2025 tax credit regime through on-site physical work or off-site construction of certain major project components that aren’t held in a manufacturer’s general inventory.

Historically, according to Ersenkal, Lydian has leaned more heavily on the tax credit transfer market than traditional or hybrid tax equity partnerships to monetize credits from its projects. But the developer is considering both options for the Atlas portfolio.

Construction financing through tax credit transfers generally involves a bridge loan, secured by a tax credit purchase commitment from a third party, since ITCs cannot be monetized before a project enters service.

Looking forward

Lydian, which is funded through Excelsior Energy Capital’s USD 1bn second flagship fund, currently boasts a 5 GW solar and battery storage pipeline, the “vast majority” of which is safe harbored for ITCs, according to Ersenkal.

The developer and IPP will look to advance those projects to commercial operations over the course of the four-year completion window for projects that fall within the safe harbor provisions, Ersenkal said.

Lydian expects to bring four of its pipeline projects online by the end of the year. And, over the next five years, Ersenkal said, Lydian is expected to bring between 6 GW and 9 GW of generation and storage capacity online.

“My expectation is that we’re building USD 7bn-USD 10bn in asset value over the next four-to-five years,” he said.

In support of that goal, Lydian is looking to acquire mid- to late-stage projects to add to its pipeline, according to Ersenkal. However, he noted that the developer is primarily focused on executing on its existing pipeline.

Excelsior deploys Fund II

Lydian parent, Excelsior, continues to deploy from its second flagship fund, which closed on USD 1bn last year, Chris Moakley, managing partner for the Minnesota-based asset manager said.

The investment firm has raised a total of USD 1.9bn, including Excelsior’s Fund I, which closed on USD 504m in 2021, and additional LP coinvestments, according to Moakley. Of that, he said, the firm has deployed USD 1.4bn.

Excelsior, this year, announced the sale to Enel Green Power of an 830 MW renewables portfolio from its first flagship fund earlier this year. And, this news service has reported that the renewables investor plans to sell its remaining 284 MW of Fund I assets by year-end. Moakley declined to comment on the firm’s specific market activities.

The looming expiration of ITCs has accelerated bifurcation in solar project valuations between development-stage and under construction or operational projects, Moakley said.

While that creates some monetization opportunities for safe harbored projects, Moakley said the firm is sticking to its model of holding and developing projects to commercial operations before bringing them to market.

“If we get a bid before COD (commercial operation date) that is really compelling, that’s something that we certainly could consider. But our focus is on bringing projects to COD. We think that’s really where we add the most value,” he said.