Despite fears that changes Congress made to the federal tax code at the end of 2017 would crimp an important source of funding for wind and solar farms, plenty of tax equity financing is still available for renewable energy projects, industry participants said.
The concerns centered on the cut to the corporate tax rate, which some predicted would erode financiers' appetite for renewable energy tax credits. Some also worry that a provision known as the base erosion and anti-abuse tax, which is aimed at limiting the use of cross-border money transfers to lower the tax bills of multinational companies, could drive some big institutions from the market.
Despite those potential headwinds, "the markets seem to be functioning fairly well on the tax equity side," John Eber, managing director of energy investments at JPMorgan Capital Corp., said March 14 at an industry conference hosted by the American Council on Renewable Energy in Washington, D.C.
"Everybody in the financial industry is looking to invest in renewables," Eber said. "Every time I turn around I find some other fund, some European investment groups, some Canadian pension funds, somebody else is coming into the market."
Not only has the industry retained access to deep pools of capital, but projects also continue to become more cost-effective, thanks in large part to better technology, such as taller towers and bigger turbines at wind farms, said Joan Hutchinson, vice president of origination and business development at project developer Lincoln Clean Energy LLC.
"I have been in this business for a long time, and haven't necessarily seen or remember a time period where there was so much interest from the debt markets and the equity markets," said Jim King, managing director and head or project finance and infrastructure at CIBC Capital Markets, a subsidiary of Canadian Imperial Bank of Commerce. The amount of capital available to renewable energy projects is abundant, King added, "and it's competitively priced, it continues to be competitively priced and if there is any pressure on that pricing, it is certainly not upward pressure, that's for sure."
One potential danger: Dramatic declines in the price of power purchase agreements have thinned margins for renewable energy projects, particularly wind farms, and some assets could be "challenged" in coming years if operating costs move in the wrong direction, Eber said.
"These projects used to be just flush with cash. … Today that's not really the case," Eber said. "So now we've got a business that looks like a lot of other businesses."
