Leyline CEO discusses current market for development capital

The Durham, NC-based Leyline Renewable Capital has a bird’s eye view into early-to-mid-stage development of renewable projects as a capital provider. In an interview with NPM, Leyline’s CEO Erik Lensch discusses how today’s market conditions, especially uncertainty around equipment pricing, are affecting current and future business in this part of the market.

“We did a risk analysis on our entire portfolio, 24 loans, and we identified the highest risk right now is where you are locked into a PPA, but not yet locked in your construction costs. Or even if you have locked in your construction costs, it does not mean you are not going to be exposed. There is quite a bit of turmoil and disruption taking place in the late stages [of development].”

Although this turmoil is adding risk to the current portfolio, “anytime there is uncertainty in the market it creates an opportunity for us to provide some capital to bridge to that permanent close. That is one area I say we see maybe a little bit of an uptick recently with supply chain issues and disruptions in the construction markets.”

One such financing is the USD 52m Leyline is providing to Aspen Creek and Clean Capital’s 113 MW Longbow Solar project in Texas.

Longbow, expected online this year, is an “example of a project needing some construction capital because of timelines shifting and extending. We stepped in to help keep the project on track, an example of the recent need for more construction to permanent bridge type financings.”

"Leyline's development capital was instrumental in preserving the project's intended summer 2022 placed-in-service timing – prior to the traditional capital markets being ready to invest in the project," said Tiffany Elliott, founder and CEO of Clean Capital Partners in an April press release.

Other uses of development financing

Long wait times in interconnection queues also present an opportunity for Leyline to deploy its niche capital.

In PJM for example, “you have seen some folks washed out of that market because you might have to wait three or four years to get projects through the interconnection queue. That is a tough business model. While it is a challenge for the developer, it is an opportunity for us because we are able to help them effectively run and grow their company during that time.”

Leyline also helps clients break into new geographies. Lensch noted some emerging markets “do not have the high cost of a market that has been heavily and aggressively sought. The conversations we have had with investors about New Hampshire and similar markets for solar is that they are placing calculated bets, getting in early with land leases, maybe interconnection queue positions.”

“If you have got 20 or so sites under control, a handful are going to be valuable. It is a numbers game that you can play at relatively modest costs. But they are leaving a tremendous amount of money on the table when exiting early because there is still a lot of uncertainty.”

Another area Leyline focuses on is coming in early and providing working capital to support growth needs for developers. The firm looks for experienced teams that left a larger developer or an engineering firm and back them with startup capital so they can launch their development business.

In June, Leyline announced USD 10m in financing to support Solterra Partners, a North Carolina based developer with a 1 GW solar pipeline. “The primary uses of capital there is to build out the team and to execute on the business plan. We expect them to really ramp up project activity in 2023,” said Lensch.

New lender entrants

The need for all sorts of development capital is greater today as the process now costs more and takes longer, but “we have seen competitive forces, both direct competitors that are focused on providing development capital as sort of a standalone solution, as well as family offices and strategic investors,” noted Lensch.

“It is still not an area where you are seeing traditional banks, but you are seeing foundations, endowments, large pools of capital that have history and experience investing in the development stage of real estate projects. They are now coming in and recognizing that there is an opportunity to make a good return on their investment in the solar and battery storage markets in the development and pre-development stages. The risks are now better understood, and development capital is almost its own asset class separate and distinct from construction or long-term financing.”

*This story was originally published exclusively for NPM subscribers last month.


New Project Media (NPM) is a leading data, intelligence and events company dedicated to providing origination led coverage of the renewable energy market for the development, finance, advisory & corporate community.