In an elevated interest rate environment, renewable energy developers and owners face mounting financial challenges to grow their enterprises and successfully execute on their pipelines. This makes it imperative to explore innovative financing solutions. One promising strategy is the sale-leaseback of land, which can provide multiple benefits for developers/owners.
In a sale-leaseback arrangement, the land on which a project is situated is sold to an investor who then leases the land back to the developer/owner under a long-term lease agreement, which provides immediate capital for a developer/owner. This influx of liquidity can be crucial, enabling developers to continue growing while expanding their development initiatives without seeking outside sources of capital and owners to recycle capital into other project investments.
Furthermore, the lease payments in a sale-leaseback arrangement are usually lower than the equivalent payments associated with the purchase of project land, which include the debt service associated with higher project loan amounts, as well as payments associated with providing a return of and return on an increased equity investment (the purchase of project land is not a capital item eligible for any government tax credits). This provides a recurring cash flow benefit resulting in an accretive outcome for the project owner.
In summary, as renewable energy developers and owners navigate the challenges of rising interest rates, sale-leaseback transactions offer an effective and creative financing strategy. By unlocking the value of their land assets, developers/owners gain flexibility to use those proceeds in higher value outcomes, whether it be advancing their development projects or investing in their project portfolios, helping contribute the transition to sustainable energy.
