The Republican tax bill, which was signed into law by President Trump in December has received a fair bit of criticism from all over, and has received some support. The new criticism from the bill is now coming from investors in the clean energy market.
Investors emphasized that the market continues to be in a limbo during a Thursday webinar from law firm, Norton Rose Fulbright. Though, the future of tax equity is getting clearer with big financial entities investing 40 to 50 percent of financing to solar projects, and 50 to 60 percent to wind projects.
Jack Cargas said, “We’re in a moment of reset, and investors are evaluating their positions,” he is the managing director of renewable energy finance at Bank of America Merill Lynch. “We haven’t really come down with a specific position. Part of the problem here, with all of this conversation, is there has been such a significant change in the marketplace.”
Cargas also said, “We are expecting steady state after the recalibration we’re also expecting… One of our observations over the years has been that the only constant in our marketplace has been constant change. That was certainly true in the case of 2017.”
The reasons for the recalibration by large financial institutions comes from a passage in the tax bill, and the provision known as the Base Erosion Anti-Abuse Tax also known as (BEAT). The provision limits the credit benefits that corporations can use to lower their tax, the final law says that companies and banks can use 80 percent of their federal investment Tax Credit and production Tax Credit in order to calculate their tax liability.
According to the managing director and head of energy investments at J.P Morgan, John Eber said that the tax equity accounted for $10 billion combined for wind and solar. With $6 billion going to wind, and $4billion going to solar, in 2017. In 2016 the investment total was at $11 billion, and then it was at $15 billion in 2015.
During the webinar, Eber said he expects the investments to be around the same this year as it was last year.
“I expect the market to tighten on the tax equity side. There are just a lot of changes, and they’re all to the negative… “Keep in mind, it’s just a limited number of investors, so all it takes is a few [to leave]. More importantly, there may be investors that are still in the market but they may moderate how much they might put into renewable energy versus some of these other markets,” Eber also said during the Webinar.
He also made the claim that only time will tell on the future of this industry.
Since the signing of the tax bill, two wind and solar investors have already exited the market. In 2017, there were about 35 for the market, no one knows if this downward trend is going to continue. Everyone agrees it’s still too early to understand the full impact!
The world of politics changes every 2-4 years due to elections, and when it does change it has an impact on the businesses. This year there may be impacts on the solar industry because of the current leadership, but the important thing to remember is that it doesn’t stay that way, because the market continues to evolve no matter who is in charge in Washington.
Economists from around the world agree that Solar is the future, and even if some investors in the United States decide to hold the money from the industry for a year or two, it doesn’t mean it’s the end of solar, because the market is just beginning to open up.
Every year investors go back and look at their investments and try to calculate where they want to place their money, and this year is no different.