- The market for renewable energy tax equity deals is likely to take a hit following the Trump Administration's tax overhaul and significant reduction to the corporate tax rate. Tax equity makes up between 40% and 60% of financing for renewables, according to Greentech Media.
- Some $3 billion in potential deals are on hold for this type of financing, which is a significant blow to a marketplace with only about three dozen investors, Bloomberg reports.
- The renewable tax credit market works because clean energy projects monetize tax credits they can't fully access themselves. But lowering the corporate tax credit from 35% to 21% means fewer companies will be looking for ways to cut costs.
Renewable energy financing could get a little tougher this year, after firms fully take into account the lower corporate tax rate. But the renewables industry is also cognizant that it could have been worse.
Among the provisions of the tax bill that were important for the renewable energy industry was the Base Erosion Anti-abuse Tax (BEAT), which attempts to ensure that corporations cannot use cross-border payments to lower their tax bill. But it also lowered the value of the production tax credits and investment tax credits that are used to finance wind and solar projects.
The provision threatened up to $12 billion of renewable energy deals, but BEAT was amended before final passage. Instead of excluding the use of the PTC and ITC to lower tax liability, the final bill allows those credits to be used to offset up to 80% of the BEAT. The tax could pull back 20% of tax credits that investors claim between 2018 and 2025, but it is far less severe than the original proposal.
But the corporate tax reduction is having an impact on renewable energy financing already. According to Bloomberg, PosiGen Inc., a Louisiana solar installer, lost a $100 million financing deal after the tax overhaul was finalized.
There was roughly $11 billion of tax equity financing raised for renewable energy projects in 2016, a decline from $13 billion raised in 2015. That drop stemmed from developers rushing deals to market at the end of 2015 out of concerns that the PTC and ITC would not be renewed by Congress. But according to an industry survey from CohnReznick, the 2016 total was still above the $10 billion of tax equity financing in 2014 and the $6.5 billion invested in 2013.