Kathryn Meng Elmes
The Good and Bad News on Renewable Energy & Environmental Tax Credits
Updated: Nov 16, 2022
Successful financiers and developers are always striving to better understand investment and underwriting risks in the context of long-term political and economic scenarios.
That is precisely what was at the core of the forward-thinking dialogues at the Novogradac 2022 Spring Renewable Energy and Environmental Tax Credits Conference in Denver. The well-attended forum outlined the latest industry trends, emerging technologies, and tax credit equity pricing and financing strategies.
Leading experts weighed in with a mix of bad and good news.
The Bad News:
The market is currently facing significant headwinds. Current law phases down solar Investment Tax Credits (ITCs) and Production Tax Credits (PTCs). In the absence of new legislation, Solar ITCs will drop to 22% by 2023, and the PTC expired at the end of 2021. Unfortunately, the Senate draft of the Reconciliation Bill was stalled by Senator Manchin in December 2021, and its prospects look bleak in this mid-term election year.
Further, the market has been anxiously awaiting the results of a Commerce Department investigation into possible circumvention of duties which could result in more solar tariffs. Jeremy Woodrum, Director of Congressional Affairs, Solar Energy Industries Association (SEIA) is hoping for a statement from Commerce by the end of August. Some of that anxiety was relieved by the Executive Order released after the conference on June 6th suspending new tariffs for the next two years.
Separately, JC Sandberg, Chief Advocacy Officer at American Clean Power (ACP) is advocating for a storage ITC. Storage is critical to a robust and resilient distributed energy system. A storage ITC could catalyze investment in much-needed battery infrastructure. Finally, ACP is also seeking streamlined local and Federal permitting.
The jury remains out on the state of and forecasts for the economy as a whole, and financial markets continue to be volatile. Interest rates are on the rise. Some commentators are predicting a 250-basis point hike over the course of the next year. Credit spreads are widening, and business confidence is wavering.
The Good News:
There is a lot of capital available to finance new projects, and in many ways it’s a seller’s market. Demand and supply are optimistically focused on the long-term. That being said, lenders are reviewing deals on a case-by-case and developer-by-developer basis. For example, some lenders remain cautious with respect to Low- and Moderate-Income (LMI) community solar given the perception of higher credit and subscriber churn risk. Others are wary of adding battery storage to projects as they are unable to assess the risks around re-charging. Nevertheless, offtake demand for renewable energy remains strong; utilities remain front and center and corporates are playing an ever-increasing role.
Solar currently accounts for only 4% of power generation in the US. If the US is to hit its 100 percent carbon-pollution free power by 2035, by 2031, more solar must be installed annually than has been installed cumulatively through 2021, according to SEIA.
Investment in clean energy cannot slow – it must increase and accelerate. Successful financiers and developers should pay attention to macro-economic, regulatory, and ESG-related trends and forecasts. They should carefully plan, build partnerships, and harness emerging tools, technologies, and approaches that allow them to ramp distributed energy investments.
The market continues to explore insurance - credit, panel supply, performance, regulatory, and trade – as a tool critical to enabling the achievement of domestic energy goals.
Energetic is proud to be at the center of this drive. Our credit insurance products enable broader and more cost-effective capital provision by covering sub-IG and unrated offtakers in a wide array of renewable energy markets.
Economic and political rough seas are ahead. The strongest players in energy financing know not to stall; they see this as an opportunity to plan and capture long-term market opportunities.
Thanks to Nathaniel Eng and the whole Novogradac team for organizing the event, and to Sam Kamyans and John Marciano at Allen & Overy, Julian Torres at Scale Microgrid Solutions, Rob Martorano at Greenskies Clean Energy, Dirk Michels at MidValley Power, Craig Robb at City National Bank, Evan Karambelas at Soltage, Rod Eckhardt at Seminole Financial Services, Justin Elswit at Celtic Bank, Winston Chen at Clean Capital, and many more for your insights and company.
Have questions on how Energetic Insurance can reduce barriers to cost-effective procurement and help support the greening of supply chains? Reach out!
This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.