White House Hosts Seminar to Spur Renewable Energy Financing
The U.S. Department of Energy (DoE) hosted a renewable energy tax equity seminar recently at the White House. The seminar was designed to promote private sector investment in tax equity partnerships for solar, wind and other renewable energy projects. Since the 2008 economic crisis, financing available for renewable energy projects has been limited as the renewable tax equity markets have been very slow to recover. Prior to the financial crisis, many large-scale renewable energy projects with little to no tax liability relied upon third-party tax equity investors to monetize the value of renewable energy incentives. Tax equity financing fell from $6.1 billion in 2007 to $1.2 billion in 2009 and has only slightly increased since then.
The DOE’s tax equity seminar brought together over 80 traditional and investment banks, venture capital firms, private companies, law firms, trade associations and government officials to discuss the opportunities, lessons and successes derived from tax equity investing, and collaborate on ways to promote more tax equity investment. DOE Secretary Steven Chu addressed the group on the need to find creative project financing methods and Google was highlighted as a private company that has invested over $900 million in U.S. solar, wind and offshore transmission projects. The group discussed ways to get others involved in these markets and spur more domestic renewable energy financing. Solar development projects are seen as particularly good tax-equity investment with after tax rates of return averaging 10-15%. All agreed that there were significant opportunities in this space while identifying challenges such as the lack of liquidity once the investment has been made and the lack of a secondary market for these types of investments.
The day-long session was particularly timely given that the Section 1603 Treasury Grant Program (TGP) expired on December 31, 2011 and has not been extended for 2012. The TGP has been critical in providing marketplace liquidity during the downturn by providing a direct grant in lieu of the 30% ITC, thus allowing companies without tax liquidity to help finance projects. The TGP has awarded grants for more than 22,000 solar projects totaling $1.98 billion in U.S. investment – driving an additional $4.6 billion in private sector investment in the solar industry across 47 states.
On the day of the seminar, an amendment in the U.S. Senate to extend the TGP along with a host of other renewable incentives failed. The amendment was championed by Senator Debbie Stabenow (D-MI) and was supported by both California senators. While efforts will continue to extend the TGP given the budgetary challenges it remains an uphill battle.
It remains vitally important to the solar industry, however, to extend the TGP program for 2012. Until the tax equity markets respond, the TGP will be the “gap-filler” to give many solar projects the financing they need to go forward. Without an extension of TGP or a quicker than expected rebound of the tax-equity market, many potential new, viable solar development projects could suffer.