Instability, uncertainty put U.S. energy dominance at risk

Billions of dollars in private-sector investments could be chilled from tax credit uncertainty, the American Council on Renewable Energy (ACORE) cautioned in its latest report, “Tax Stability for Energy Dominance.” The domestic energy dominance agenda, ACORE says, has never been more important.

The report, which included interviews and a survey from mostly top-level executives who work at 39 of the largest clean-energy developers and investors in the country, said the United States will achieve energy dominance and protect energy investments if it provides policy certainty, maintains clean energy tax credits, and preserves the transferability provision.

Most of the respondents said they will continue to see clean energy as an attractive asset class and would not reduce their risk profiles in an environment with limited policy changes. ACORE found most respondents held this perspective despite their remained concerns about existing market risks, such as insufficient transmission capacity, delays and costs associated with interconnection queues, inflation and input costs, and supply chain constraints.

“With a repeal of the clean energy tax credits there would be a material decrease in the amount of projects getting done. This translates to fewer jobs and lower property tax revenues for the counties where these projects would be built. Landowners would lose the lease revenues that clean energy projects provide, which helps farmers keep their farms in their family,” a developer told ACORE.

ACORE’s survey also found most investors and developers expect a variety of project financing sources to increase, particularly standalone transferability, and hybrid tax equity and transferability structures.

However, the report cautioned, “policy changes that repeal or devalue the energy tax credits significantly threaten to significantly reduce sector investments, along with continued regulatory changes and the implementation of additional tariffs affecting the clean energy supply chain.”

Every investor and 90% of the developers surveyed said they would plan to increase or maintain their activity in the U.S. clean energy sector as long as no changes were made to energy tax credits.

Notably, the report says, 50% of the companies that invest $500 million or more annually would intend to increase their investment by 10% or more, translating to billions of dollars in private-sector investments. Tax credit uncertainty, however, could cause 84% of investors and 73% of developers to decrease their activity in clean energy, the report said. Among the respondents from companies with over $1 billion in investments, 80% said they would significantly or moderately decrease their clean energy investment plans, potentially translating to the loss of tens of billions of dollars in private sector investment.

Transferability is now a leading source of investment within clean energy, often either serving as a primary source for projects or supplementing other sources of financing such as tax equity through hybrid structures.

(Read: The rise of transferable tax credits in clean energy finance)

Transferability enables small and medium sized businesses to take advantage of tax credits, but prior to the Inflation Reduction Act (IRA), the direct sale of tax credits outside of tax equity structures was not a possible pathway to monetize the tax credits. The IRA authorized the owners of new clean energy infrastructure to sell nine types of tax credits to other companies for cash.

As a result, transferability has enabled new entrants in clean energy, making it easier for more companies and smaller organizations to deploy their capital.

“Without transferability, tax equity will go back to just the big players and leave no room for new folks at the table who are necessary to the growth and evolution of the industry,” said a respondent who works at a community solar and affordable housing investment fund. “Transferability has made it a lot easier for corporate America to invest in renewable energy. In the past when you look at traditional tax equity, there was only a handful of players that could really benefit from accessing these tax credits,” an insurance broker told ACORE.

ACORE recommended to preserve the transferability provision, which “will enable the continued participation of small and medium-sized businesses in the market and propel more project from ideas on paper to steel on the ground.”

Longstanding federal energy tax credits have played an instrumental role in creating a stable market environment to stimulate this growth, ACORE says. Domestic energy has been further bolstered by recent enhancements to these credits, which include production and investment tax credits for energy generation facilities, domestic manufacturing and critical minerals production, associated bonus credits, and new tax credit monetization options such as transferability.

Maintaining certainty around the current suite of credits supports the continued buildout of American energy, the report emphasizes, while enabling critical benefits such as:

fostering job creation and local economic benefits,
driving affordable power prices,
enhancing grid reliability,
strengthening global competitiveness, and
reshoring manufacturing.

“America needs an ‘all of the above’ energy strategy if we want to achieve energy dominance,” said ACORE President and CEO Ray Long. “We have an extraordinary opportunity to meet the demand growth challenge with affordable, reliable, and secure energy, so we can’t afford to forfeit this chance by limiting our own advantage.”

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