SUPPORT FOR NEW ENERGY

New Money, Investors, and Finance Models Needed to Keep US Renewable Energy on Track
21 November 2011 (Bloomberg New Energy Finance)

"With electricity demand weak and stimulus funds dwindling, the US renewable energy sector must attract new investors and make use of unique tax-based financing structures in the next 18 months or risk a sharp drop in new project builds, according to new research by specialist research firm Bloomberg New Energy Finance…

"The clean energy industry in the US has been a major beneficiary of public support from the American Recovery and Reinvestment Act in the form of over $65bn in tax credits, grants, and soft loans. But nearly all of those stimulus funds have now been deployed. Unless the private sector steps into the breach with substantial new investment, project development will slow…"

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"…Growth in the US renewable sector has been largely driven by the availability of tax equity or its temporary substitute in the aftermath of the financial crisis, the cash grant…Alternative sources of tax equity may need to emerge to meet [the $7 billion] market demand for project finance…There is a vast pool of potential incremental tax equity supply: the 500 largest public companies in the US alone paid $137bn in taxes over the past year…Expiry of the cash grant should not be expected to result in collapse of the US renewable sector…However, significant uncertainty will remain until Congress reaches a decision about whether or not to extend the production tax credit…

"…The three primary tax equity structures offer distinct advantages to developers and tax equity investors…partnership flip…sale leaseback…[and] an inverted lease…The economics of these structures can be attractive…[Developers can get] returns of 6-19% and investors [can get] 10-49% for wind projects…The choice of investment versus production tax credits (ITC vs. PTC) comes down to the three ‘P’s: performance, perspective and priorities…The optimal tax equity structure depends on the project characteristics... but perfect optimisation may be a pipedream..."