Permitting processes pose some of the biggest challenges to new-build renewables over the next five years, in the view of one power executive, as local communities push back against development.
"In some cases we've migrated from NIMBY-ism to BANANAS, 'Build Absolutely Nothing Anywhere [Near Anything]," Carla Tully, executive vice president and managing director at MAP Energy LLC, said during a panel at Bloomberg New Energy Finance's Summit in New York.
Tully cited efforts in several renewable resource-rich states, including Indiana, Iowa and Ohio, that aim to "have policy and legislation create setbacks that render projects uneconomic."
"While on the one hand we've had a massive, massive swing of people saying 'We're concerned about climate change, we want to see a green economy, we want to see clean energy,' when you get down to the very local level where the permitting needs to happen, we're seeing an opposite force," said Tully. "How those two play out will be the difference between realizing our green energy future or not."
Investors and financiers at the BNEF Summit also weighed in on other factors impacting renewable development including looming tax credit deadlines, basis risk and the evolution of off-take agreements.
Both Tully and Ralph Cho, co-head of power and infrastructure at Investec USA Holdings Corp. Inc., acknowledged that basis risk continues to be a concern in a changing market, with Tully charging that many power purchase agreements have been entered into without project owners understanding what "the fundamental supply and demand dynamics at a particular location are and what basis risk is really all about."
"We should be exploring more nuanced contracting structures," Tully added, suggesting the renewable world look to gas-fired contracts as examples. "If you talk to thermal owners, they have an incredibly acute sense of basis risk and of the value of time and place."
Cho, however, warned that major changes in how renewables are contracted, and any uncertainty that would imply, could spell trouble for project financings.
"Banks want contracted cash flows," Cho said. "If you don't give that to them, they're going to come up with a revenue stream for you and you may not agree with that revenue stream but it's going to be what the banks feel safe at night with."
A changing landscape may ultimately impact developers in need of capital, according to Cho, who added, "Most commercial banks in our market want to see fully contracted deals and for that they are going to charge very, very little."
For merchant renewables, however, pricing is less competitive and borrowers are dealing with a smaller number of banks willing to do business.
"Fully merchant renewables deals are pricing tighter," said Cho, who noted that Investec recently sealed financing on a fully merchant wind portfolio with a seven-year tenor. And his team is not alone.
"Three fully merchant wind deals closed earlier this year, so certainly these deals are getting done," said Cho, who added that the deal's "halo factor" of being renewable helps.
While wind makes up the bulk of merchant renewable assets in the U.S., Tully believes more merchant solar facilities will appear in coming years.
"The good thing about solar is that the revenues seem a lot more stable than wind," said Cho.
Storage remains popular
Paul Browning, president and CEO of Mitsubishi Hitachi Power Systems Americas Inc., called storage technology a "game changer" as a strategy to expand the impact of renewable assets.
"Thus far it really has been gas and renewables working together" that have brought CO2 levels down 33% from their 2005 levels, said Browning.
Catherine Tanna, Managing Director at EnergyAustralia Holdings Ltd., agreed that gas, like renewables, has "a big role to play."
Every new solar project churned out by developer 8minutenergy Renewables LLC will have a storage component, said company Vice President for Storage Solutions Steve McKenery. "Storage is like bacon. It makes everything better," he added.
Tax equity countdown
With the anticipated phase-out of federal tax subsidies for wind and solar projects expected to phase-out, developers are scrambling to qualify.
"The phase-out now is definitely putting more time pressure on market participants," said Tully, who credited the tax incentives and a long period of policy stability with helping grow the U.S. renewable industry. "We're continuing to see the technological improvements, we're continuing to see that capital costs come down," she said.
"As a wind and solar developer we've been through this before," Shashank Sane, senior vice president for corporate development at Invenergy LLC, said.
Invenergy will be starting construction on projects in time to qualify for the tax credits and will also be procuring safe-harbored equipment, but Sane conceded a benefit to waning incentives, noting that Invenergy is not relying on an additional extension of the tax credits.
"Capital costs are going to continue to come down. While the PTC and ITC are great to get things going," Sane said. "I think everyone would acknowledge, it's not the most efficient financing tool."