Optimism and concern at the REFF Wall Street conference

2017 is a good year for renewable energy finance in the United States. With the extension of the federal Investment Tax Credit (ITC) and Production Tax Credits (PTC), solar and wind markets are still going strong, and an increasing amount of tax equity funding is available.

Additionally, falling costs of both solar and wind – particularly offshore wind – are making deployment all the more attractive, and opening up new possibilities such as flirting with merchant sales of power.

However, there are a number of dark clouds on the horizon, which gave a tone of seriousness to the first day of the 14th Renewable Energy Finance Forum (REFF) Wall Street, which started yesterday in New York. Chief among these is the possibilities of trade action by the Trump Administration spurred by Suniva’s Section 201 petition, which could put at risk more than 11 GW of solar projects which are counting on cheap imported PV modules.

Overall, investment remains strong. ACORE identified over $46 billion in U.S. solar and wind investments last year (excluding residential and other small-scale solar), and while this represents a decline from the previous year, the capacity of renewable energy installed increased, further underscoring the fall in prices.

“Renewable energy has been the nation’s largest source of private sector infrastructure investment for each of the past six years,” noted ACORE President and CEO Greg Wetstone.

And long-term growth is supported by the extension of the ITC and the PTC, although in the details these extensions are also having effects on the market. While a number of participants emphasized that the supply of tax equity financing remains adequate for the means of deployment, the scheduled drop-down in the wind PTC is causing wind developers to buy turbine parts to quality for a safe-harbor provision.

This hoarding is not limited to wind. In anticipation of possible trade action through the Suniva Section 201 petition, a number of solar developers including leading commercial solar developer Greenskies have admitted that they are stockpiling PV modules.

In general, participants at the conference indicated that capital availability remains robust, but that there are other headwinds. “A lot of people have projects,” noted  NRG Senior VP of Finance Gaetan Frotte in an afternoon panel on the first day. “What is in a shortage is good, long-term contracts.”

This is happening as procurement of renewable energy moves beyond the traditional utility players, with a number of corporations and entities such as community choice aggregators getting in on the market.

There are clearly more projects than buyers, and in this market not only are prices and margins suppressed, but contract terms are getting shorter. Despite the disastrous experience of solar plants that sell power on the spot market in both Chile and Texas, Invenergy VP of Development Jim Murphy spoke of a new “merchant tail” phenomenon, where projects start off with a PPA and then go into the spot market when that expires.

In fact, the emerging abundance of capital for renewable energy so significant that banks are beginning to engage in full underwriting of loans to solar projects.

And while the Trump Administration’s plans for corporate tax reform could throw the market for a loop, participants at the conference did not seem terribly concerned about this, given the other issues that Donald Trump is facing at the moment. When a moderator asked the room how many people thought that tax reform would happen this year, no hands went up.

Given the number of uncertainties including the possibility of reduced corporate tax rates undermining the ITC and a potential doubling of module prices through the Suniva Section 201 case, it remains to be seen the REFF Wall Street conference will look next year. But right now it is a remarkably good time in renewable energy finance.

And this is part of an overall transformation of energy markets. Ray Henger, senior VP of M&A and structured finance at sPower spoke of the combination of solar and storage and wind and storage becoming “a form of baseload for part of the day”, a recognition that the low costs of these resources is fundamentally reorienting both the structure of power markets and how we think about them.

And despite Trump leaving the Paris Accord, this shows no sign of slowing down. Not only did he see no indication form the current administration that there were any plans to change the terms of the ITC or PTC, but ACORE President and CEO Wetstone noted that we have “a pretty good start” at deploying sufficient renewable energy to reach the 50% power sector emissions reductions which would allow the United States to achieve an overall 30% emissions reductions by 2025, the original aim of the Paris Climate Accord.

 

Correction: An earlier version of this article mischaracterized the 50% emissions reductions addressed by ACORE as the goal of the CPP. This has been corrected to note that 50% power sector emissions reductions will allow the United States to achieve the overall emissions reductions which were the aim of the Paris Accord.