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US tax credit extension 'unlikely' in 2019; Vivint Solar braces for ramp down

Despite the recent introduction of legislation to extend a critical U.S. tax incentive that has fueled the growth of solar power across the country, residential solar company Vivint Solar Inc. is bracing for waning federal support.

"I do think it's unlikely this year. I hope I'm wrong," CEO David Bywater said on an Aug. 8 earnings call with investment analysts. "I think if it happens, it happens next year," he added, depending on the outcome of the 2020 elections.

The investment tax credit, or ITC, is scheduled to drop to 26% of project cost in 2020, from 30% currently, falling to 22% in 2021 and 10% in 2022 for businesses, while phasing out entirely for homeowners.

Bywater is optimistic the ITC ultimately will be extended, noting solar's broad support and economic benefits, and the federal government's long history of driving energy industry development with incentives.

"The fossil fuel industry has benefited from direct and indirect support for well over a century and the renewable energy industry that is employing so many Americans deserves a level playing field," he said.

While Vivint is among the solar companies lobbying for a new lease on the ITC's life, the Utah-based company is preparing for life after.

"Substantially all" of Vivint's solar installations have been eligible for the tax credits, according to an Aug. 8 filing with the U.S. Securities and Exchange Commission, which lists the elimination or reduction of the ITC as a risk factor that could adversely impact its business. Vivint, like other solar companies, relies on the ITC to attract investors seeking "tax-advantaged financing," according to the filing. "We are not certain that this type of financing will continue to be available to us," the company said.

For now, Vivint continues to show its ability to raise capital, closing a $325 million credit facility on Aug. 6.

Solar companies are seeking to soften the immediate blow of an ITC reduction after 2019 by purchasing solar components or starting construction by the end of this year to build a backlog of projects that qualify for higher incentive levels, a strategy that is driving industry-wide anticipation of a strong year for U.S. solar demand.

"We'll work to hedge our bets the best we can," the chief executive said, without detailing Vivint's specific approach.

The accelerated buying activity in the U.S., coupled with high demand for solar panels globally, has created tightness in the market for modules, the company acknowledged. During the second quarter of 2019, the company's cost per watt increased to $3.56, from $3.23 a year ago.

Vivint posted an adjusted net loss of 73 cents per share in this year's second quarter, compared to a loss of 50 cents per share in the second quarter of 2018. The company increased its second-quarter revenues 12% to $90.8 million on installation of around 56 MW, up from 47 MW in last year's second quarter. Vivint expects to deploy 62 MW to 65 MW in the third quarter.

The company's stock was down roughly 20% in midday trading Aug. 9.