Rush is on to invest in solar and wind ahead of tax credit’s end 

Source: Saqib Rahim, E&E reporter • Posted: Monday, June 29, 2015

NEW YORK — Solar and wind firms know well that a favorite federal tax incentive could expire at the end of 2016. Instead of waiting to see if it happens, they’re investing now.

Companies are rushing to build solar and wind projects before 2017, when the federal investment tax credit for renewable energy is chopped from 30 to 10 percent, renewables financiers said at a conference this week.

The question is whether this sets up a cliff in investment for 2017, or more of a slope. That was a subject of debate at the Renewable Energy Financing Forum here.

“It’s clearly a factor, it’s providing urgency to developers to get projects in line,” said Ray Wood, managing director and head of U.S. power and renewables at Bank of America Merrill Lynch. “We could see much more activity and then a bit of a lull, but we don’t think as dramatic as what we saw in past years on the wind side when the [production tax credit] was delayed.”

He said 2017 could be a “rocky year” for investment if too much gets pulled into 2016. But like many others, he believed the renewables industry will adapt: “In the long term, we think this industry can sustain it, no question.”

The renewables sector is enjoying a position it’s never seen before: commercial success and policy uncertainty. At the forum, many thanked federal tax credits for helping fuel massive cost cuts in wind and solar, to the point that solar and wind are now economically competitive in many markets in the United States and even eyeing expansion.

“It has allowed this industry solar and wind … to scale, where we are today,” Kevin Walsh, managing director for power and renewable energy at GE Financial Services, said of the tax incentives. He called the drop in solar module prices “phenomenal.”

Solar photovoltaic module costs have fallen 80 percent since 2008, according to Bloomberg New Energy Finance. Much of that is attributable to a tenfold increase in production, largely driven by Chinese manufacturers trying to capture the market.

However, industry insiders remain unsure of how a repeal or reduction of federal tax incentives would affect deployment. The sense was that the effect would be temporary but potentially significant — enough to make some solar and wind companies hustle to beat the change.

Roughly 15 gigawatts of renewables capacity was built in the United States in 2014, according to Bloomberg New Energy Finance. It forecasts about 20 GW for 2015, and about 10 GW in 2017 and 2018. At REFF, some mentioned that the project pipeline for 2017 appears to be low.

“Until there’s a more permanent context, you’re going to have volatility,” said Jim Barry, managing director and global head of BlackRock Infrastructure Investment Group. Whatever the new status quo is, “it will have implications for the pace of development and opportunities in that transition phase.”

But some companies have already begun preparing for life after incentives. SolarCity Corp. is trying to slash costs so it can keep its desired rate of return even with a lower federal tax credit.

“How are we going to compete in 2017?” asked Marco Krapels, senior vice president of structured finance and strategy at the San Mateo, Calif.-based company. “And the answer is, you’ve got to be in full control of your costs.”

It used to take SolarCity three weeks to install a complete solar system for a big-box retail store, he said. Now it takes two days, allowing SolarCity to enjoy a huge cost reduction that he said positions it well for 2017