For decades, big banks and investors have invested tens of billions of dollars in renewable energy projects in the United States through a section of the tax code that allows them to offset their income with solar and wind investments.
But the incentive weakens as the pandemic reduced corporate profits, making it more difficult to close deals under the financing system called “tax fairness”.
Today, renewable energy companies are pushing for direct cash payments from the federal government instead of giving tax credits to outside investors. The push comes during a flurry of bills on tax credits for energy and carbon dioxide capture at the end of the session of the US Congress.
“The market is not frozen, but it is not completely liquid. It’s more like walking into Jell-O to get things done, ”said Conor McKenna, senior managing director of CohnReznick Capital, an investment bank that advises clients on the tax equity market. “Everything just takes longer.”
The U.S. government grants tax credits for renewable energy developments since the 1970s. Since new projects often have no tax debt, developers look to secure funds from deep-pocketed institutions such as JPMorgan Chase, Bank of America and Berkshire Hathaway, which can claim the funds. credits on their own tax obligations.
Some project promoters complain that investors in tax stocks have become more difficult to find. Of the 24.5 gigawatts of wind projects slated for construction in 2020 or 2021, up to 16.6 GW were still seeking a tax fairness partner in October, said Stephen Munro, analyst. policy at BloombergNEF, a clean energy research group. For 34 GW of scheduled solar projects, 20 GW still needed tax fairness.
“Our markets are currently somewhat frozen,” said Tom Buttgenbach, managing director of California-based 8Minute Solar Energy, one of the nation’s largest developers. He said banks were reluctant to commit when they were unsure of the size of future profits.
Cold is slowing the growth of wind and solar projects, just as the climate crisis calls for massive investments in zero-emission resources, say renewable energy leaders. They support legislation allowing developers themselves to collect tax refunds for projects, which would bypass tax capital investors.
Abigail Ross Hopper, chief executive of the Solar Energy Industries Association, said changing the beneficiary of the loan would be “the smartest and easiest solution.”
Tax fairness for renewable energy is a $ 12 billion to $ 13 billion market, with JPMorgan and Bank of America each investing around $ 3 billion in 2019, said Keith Martin, an attorney at Norton Rose Fulbright in Washington. The top five investors hold 80% of the market, a banker said.
Some investors deny that they are withholding net worth from tax. Yale Henderson, head of energy investments at JPMorgan, said the bank will experience “the biggest year in history” in tax fairness transactions. He didn’t foresee any slowdown in 2021 and he believed the same was true for other big investors.
“I would say there is enough tax fairness to allow all good projects to be funded,” said Henderson.
Philip Hopkins, head of renewable energy and environmental finance at Wells Fargo, said his bank had “had a very good year in 2020 and actually invested a lot more than in the past”, and was hoping for a “busy 2021.”
Avangrid – a US developer of utilities and renewable energy controlled by Spain’s Iberdrola – recently told investors it had issued $ 600 million in fiscal equity financing. The company “has been able to execute the necessary tax capital for our projects and has not experienced any constraints,” a spokesperson said.
However, business at Bank of America had been slow, said a person familiar with the matter. The bank declined to comment.
Smaller banks, including First Horizon, M&T Bank and SunTrust, which is part of Truist Financial, have either halted or slowed investments, according to executives who spoke on a sign moderated by M. Martin.
The tightening market is hitting developers without the scale or banking connections necessary to gain attention. When developers first envisioned a shortfall last spring, it sparked a fundraising rush that squeezed less nimble companies, bankers said.
“Mid-sized developers are excluded,” said Jim McGinnis, general manager of the infrastructure, energy and renewable energy group at PJ Solomon, an investment bank.
In response to industry demands, four members of Congress – two Democrats from California and New York and two Republicans from Arizona and California – introduced a bill last month to allow the payment of tax refunds. directly to solar projects that have started by the end of 2021.
The renewable energy industry has also asked Congress to extend the expiration dates for credits. The wind tax credit ends after this year and the solar credit gradually decreases.
A banker warned that paying cash refunds directly to developers could create incentives to build “not-so-great projects” in poor places or with inferior designs. Tax capital investors “assess the quality of projects before investing,” a system that “outsources some of the oversight and compliance control to investors in exchange for financial return,” according to one. report by the US Congressional Research Service.
Bill Parsons, head of policy at the American Council on Renewable Energy, warned there was no time to waste.
“The climate clock is ticking and 13% of clean energy workers are still out of work due to the pandemic,” he said. “We need to get them back on their feet to build America’s clean energy future, and that is precisely what these revolving credits are designed to do.”