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Variable Interest Entities
12 Months Ended
Dec. 31, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Variable Interest Entities Variable Interest Entities
We participate in certain partnership arrangements that qualify as VIEs. These arrangements consist of tax equity financing arrangements (TEFs) and partnerships in which an investor holds a noncontrolling interest and does not have substantive kick-out or participating rights.
The sale of a membership interest in the TEFs represents the sale of an equity interest in a structure that is considered a sale of non-financial assets. Under the sale of non-financial assets, the membership interests in the TEFs we sell to third-party investors are reflected as noncontrolling interest on our condensed consolidated balance sheets valued based on an HLBV model. Earnings from the TEFs are recognized in net income attributable to noncontrolling interests in our condensed consolidated statements of income. We consolidate the entities that have TEFs based on being the primary beneficiary for these VIEs.
On September 9, 2021, we sold an additional TEF interest in Aeolus Wind Power VII, LLC (Aeolus VII) for $131 million. The $8 million difference between the amount received and the $139 million noncontrolling interest recognized was recorded as an adjustment to equity because there was no change in control as a result of the transaction.
On November 4, 2021, we sold a TEF interest in Aeolus Wind Power VIII, LLC (Aeolus VIII) for $199 million, of which $8 million was held in escrow until certain conditions were met on August 10, 2022. The two wind farms are the first in a portfolio of companies called Aeolus Wind Power VIII, LLC (Aeolus VIII).
On April 29, 2022, we closed on one TEF agreement, receiving $14 million from a tax equity investor related to one solar facility. The solar facility is the first in a portfolio of companies called Solis Solar Power I, LLC (Solis).
On June 15, 2022, we closed on one TEF agreement related with Aeolus VIII, receiving the initial funding of $109 million from one tax equity investor. Two newly constructed facilities, one wind farm and one solar facility, became part of Aeolus VIII.
On March 31, 2023, we received the second funding of $61 million related to Solis I from one tax equity investor.
On November 21, 2023, we received the second funding of $124 million related to Aeolus VIII from one tax equity investor.
As of December 31, 2023, the assets and liabilities of the VIEs totaled approximately $2,741 million and $174 million, respectively.
As of December 31, 2022, the assets and liabilities of VIEs totaled approximately $2,853 million and $424 million, respectively. At both December 31, 2023 and 2022, the assets and liabilities of the VIEs consisted primarily of property, plant and equipment.
Wind and solar power generation are subject to certain favorable tax treatments in the U.S. In order to monetize the tax benefits, we have entered into these structured institutional partnership investment transactions related to certain wind and solar farms. Under these structures, we contribute certain wind / solar assets, relating both to existing wind farms and wind farms / solar facilities that are being placed into operation at the time of the relevant transaction, and other parties invest in the share equity of the limited liability holding company. As consideration for their investment, the third parties make either an upfront cash payment or a combination of upfront cash and payments over time. We retain a class of membership interest and day-to-day operational and management control, subject to investor approval of certain major decisions. The third-party investors do not receive a lien on any assets and have no recourse against us for their upfront cash payments.
The partnerships generally involve disproportionate allocations of profit or loss, cash distributions and tax benefits resulting from the wind farm energy generation between the investor and sponsor until the investor recovers its investment and achieves a targeted cumulative annual after-tax return. Once this target return is met, the relative sharing of profit or loss, cash distributions and taxable income or loss between the Company and the third party investor flips, with the sponsor generally receiving higher percentages thereafter. We also have a call option to acquire the third party investors’ membership interest within a defined time period after this target return is met.
Our El Cabo, Patriot, Aeolus VII, Aeolus VIII, and Solis I interests are not subject to any rights of investors that may restrict our ability to access or use the assets or to settle any existing liabilities associated with the interests.
See Note 22 - Equity Method Investments for information on our VIEs we do not consolidate.