When it came online earlier this month, Nevada’s Gemini project became one of the biggest solar-plus-storage installations in the world. The project alone has the potential to supply around 10% of the state’s peak power demand.
Boasting 1.8 million solar panels with a capacity of 690 megawatts, and 380 MW of four-hour battery storage, the plant’s construction took over two years.
But before a single stake was placed in the ground, arranging its financing was the developer Primergy Solar’s first hurdle. (Quinbrook Infrastructure Partners announced the project in 2018, but didn’t assign it to its newly launched portfolio company Primergy until 2020.) And doing so alongside the dramatic market shifts of the last few years — from pandemic recovery to the Inflation Reduction Act’s implementation — complicated things further.
The final deal, which closed in April 2022, amounted to $1.9 billion. That included debt and a whopping $532 million in tax equity.
For Tim Larrison, Primergy’s CFO, getting Gemini funded was the type of opportunity, and challenge, that happens once or maybe twice in a career — and one that required months of coordination and flexibility.
“$532 million, at that time and even today, is an enormous amount of tax equity,” Larrison told Latitude Media in an interview, noting that the overall tax equity volume for U.S. projects was around $20 billion in total in 2023. “That was a very, very, very high mountain to climb for a new sponsor, and it was the largest single asset solar asset financing at the time for tax equity.”
Putting it all together
When Quinbrook launched Primergy in 2020, Gemini had already signed a 25-year power purchase agreement with Berkshire Hathaway Energy’s subsidiary NV Energy and received its final federal permits.
It appointed Ty Daul, formerly at Recurrent Energy Group, as CEO, and recruited Larrison from ENGIE Storage, where he was working as CFO, and assigned them the task of taking the mid-development project and pushing it through financing, construction, and operations.
Larrison said that Primergy’s first order of business was to take out a pre-development loan for the roughly $150 million of deposits that needed to be made on batteries and solar panels. The provider KeyBanc set up that loan so that it would later roll into the $1.3 billion of project financing that closed in 2022.
Primergy raised the debt with the help of four banks — KeyBanc, MUFG, Bank of America, and Nord LB — which syndicated the debt to 19 lenders in a twice oversubscribed syndication process. From start to finish, it took Primergy around 18 months to arrange the whole thing.
At the same time, Primergy was also figuring out what Larrison describes as “the issue” of the “beautiful” Gemini project: an unprecedented amount of tax equity. Since the $532 million was too much for a single investor, it was split between Truist, which was setting up its renewables business and was interested in doing so with a “marquee project”; and Bank of America, which already had a good relationship with the team.
(Concurrently, Quinbrook initiated the sale of the 49% non-controlling stake in Gemini that was ultimately acquired in October 2022 by APG, a major pension asset manager in the Netherlands. The process required securing a $95 million mezzanine debt facility from Voya Investment Management, which was later repaid through the sale’s proceeds.)
The total $1.9 billion in debt and tax equity financing successfully closed in April 2022, after 18 months of work involving over 100 people. Only then could construction begin in earnest.
Plot twist
Of course, just a couple of months later, the Biden administration passed the Inflation Reduction Act, and what had been a closed deal suddenly cracked open. Because the IRA restructured tax credits for solar energy, the Gemini project had some new math to do.
“In the case of Gemini, the production tax credit was substantially more valuable than the investment tax credit,” Larrison said. “So we changed the financing of the deal leading up to mechanical completion from an investment tax credit to a production tax credit.”
That required renegotiating the financing with all the players involved, and changing all the documentation.
“It hurt me emotionally, if I’m being honest,” Larrison said. “But joking aside, it was to everybody’s benefit. And ultimately, when it got done, everybody was very happy.”
The switch to production tax credits left Primergy with a surplus that it’s planning to sell into the tax credit transfer market later this year.
By creating a transferability structure that allows new tax incentives to be sold for cash, Larrison said, the IRA has changed the market drastically. Before, a developer needed to raise all the tax equity, which is one of the reasons pulling together a big deal like Gemini’s was so challenging. But now that developers can sell credits, that’s not necessary anymore.
“The day that you need a fully subscribed tax equity partnership out of the gate might be over,” Larrison said. “Gemini has almost become a relic of pre-IRA financing. Giant, successful — but I wonder how many fully-subscribed tax equity financing there will be going forward.”
Editor’s note: This story was updated on August 9 to make a correction. The tax equity amount was $532 million, not $535 million.
