Market volatility and policy swings driven by the Trump administration could chill power project financing, planning and execution, experts and industry participants said at the recent S&P Global Power Markets Conference.
"The dramatic changes in policy that happen from day to day just [make] all the uncertainty very hard to navigate," Vivek Kagzi, a managing director at Goldman Sachs, said during a discussion at the Las Vegas conference April 14–16. "If the administration just picked a policy and said, 'OK, this is it,' then people could start to plan around it and try and figure out how to make investment work, but the back-and-forth is what makes it really hard."
Generation projects in various stages of construction are at risk as company capital expenditures rise. Avangrid Inc. CEO Pedro Azagra cautioned that it is important "not to kill what was being done in the last two to three years and is ready to go."
Developers approved these projects, intended to accommodate growing demand forecasts, with the expectation they would be eligible for federal tax credits. To ensure the projects are completed, the industry must advocate for those credits to remain in place, Azagra said, adding, "We need to be ready to react."
John Lushetsky, senior vice president at ML Strategies, said the industry should hope that enough Republicans in Congress "will help preserve some" of the existing energy tax credits.
The precariousness of those incentives may already be affecting deals and projects as developers fear the possibility of retroactive changes for ongoing projects and weigh additional risk, said Bryan Didier, partner and managing director at Monarch Private Capital.
While the market is used to certain levels of risk, some deals and projects could be pushed later in the calendar year or further as the sector and investors await clarity on incentives, tax credit transfers and tariffs from the administration and Congress, said Ben Jacoby, partner and managing director at Paragon Energy Capital.
"Policy change is one thing," said Allan Sun, head of project finance at the New York branch of the Industrial and Commercial Bank of China. "It's the policy uncertainty driving long enough, back and forth, that is [the] cause of pause on investment decisions."
Overall, unpredictable federal policy could lead to a shift in investor appetites, tax equity and more, experts said.
"As everyone knows, there's a lot of uncertainty out there in the very not-too-distant-future, what's going to happen to the [Inflation Reduction Act], so we're seeing a lot of accelerated demand on the financing side from our renewables clients," said Patrick Boultinghouse, a managing director at Bank of America.
"Our credit team tracks how many deals they look at on the asset-level side, and the quote from my credit folks in January of this year was a record month for the number of deals that they screened just because everyone is racing to lock in the financing ahead of potential changes," Boultinghouse added.
And while existing deals may still move forward in the tax equity market because of safe harboring, "nobody is taking any risks on a change of law or change of tax policy," Boultinghouse said. "If you're asking the banks or anyone else to take a view on something down the road, nothing's getting done."
"The volatility and uncertainty are not necessarily inspiring investment," said Ayaz Shaikh, chair of projects and infrastructure practice at the Mintz law firm in Washington, DC.
Generation priorities
The Trump administration has downplayed some types of generation, such as offshore wind, while favoring fossil fuels. It remains to be seen how the industry will react to those shifted priorities.
"We are seeing sort of a different management of the [energy] transition," said Stu Bresler, PJM Interconnection LLC executive vice president of market services and strategy. "It will likely extend that transition a little further, but may give us the opportunity for more conversion projects."
But retirements of older, more carbon-intensive resources "are not stopping," Bresler said.
Some fossil plants may stay online past prior retirement schedules, as long as owners can justify keeping them online, said Kleber Costa, chief commercial officer at AES Clean Energy. Some may convert to peaker plants to support the energy transition.
It's unlikely that recent actions from the administration will result in a true lifeline for coal, however. And renewables, even without major federal incentives, are expected to remain competitive, said Gregory Hort, a managing director at Lazard.
The industry already was moving away from coal-fired generation for economic reasons, primarily availability of cheaper gas, but also the operational costs of an aging US coal-fired fleet, said Vicinity Energy President and CEO Kevin Hagerty and Larry Bekkedahl, senior vice president of strategy and advanced energy delivery at Portland General Electric Co.
"The US is running out of power," said Himanshu Saxena, chairman and CEO of Lotus Infrastructure Partners LP. "Everybody's been caught a little by surprise at how quickly this demand has come up. The focus now is, really to the exception of coal, everything else is fair game."
But uncertain demand growth projections also could stymie capacity growth.
"There's always been some level of uncertainty," Bresler said. "But it has grown with forecasted load growth in recent years."
That has complicated plans to build transmission, given uncertainty about "how much [load growth] will actually materialize," Bresler added.
Power providers face a massive need for investment to fuel growing demand, but they must contend with rising uncertainty on cost and grid connection timelines.
"It all just starts with the demand, so the huge risk with all of this tariff stuff and economic uncertainty is that the demand goes away," Hort said.
"What's important is stability," Azagra said, adding that he feels the Trump administration is listening to the needs of the energy sector and that administration officials understand the stakes. "What they realize is, if you do nothing, you're going to have blackouts."
Until uncertainty created by the administration is resolved, "it's very difficult to make longer-term decisions in terms of financing," said Boultinghouse. "Just rip the Band-Aid off, one way or another, we'll move beyond it."
"Those risks can be quite untenable," Saxena said. "Investment is sorely needed, but there's too much uncertainty."
