Navigating Renewable Energy Policy Changes
Hi All,
I've been in a Project finance role at a solar developer for a little over a year now. It's been an exciting experience, and so far, everything has gone well. That is, until the election.
Politics aside, the 'One Big Beautiful Bill' proposes some drastic policy changes regarding the tax credits developers like us utilize, which will affect the economics of projects in a meaningful way. Our projects will pencil, but there will be much, much slimmer margins. I'm worried that we analysts on the PF team will be seen as "expensive" and "inexperienced" through all of this change and I am curious if anyone has dealt with similar challenges.
Should I be looking for a new job or polishing my resume, just in case, or should I wait it out? I'm sure this bill has a long way to go and that things can change, but I'm just very unsure of it all.
Sit tight. Even if the credits are eliminated there is a huge need for new generation in the next 5 years that only renewables and BESS can meet. What this means is that offtakers will be willing to pay the ~30% premium that will be required to get projects built. Bank debt will cover the majority of the funding gap. Economics shouldn't change that much for developers.
It's important to remember that PV + BESS is now cheaper than new build gas (see Lazard LCOE presentation).
I'm intrigued to see how much of the gap bank debt will fill, and generally agree that PV + bess is the only way to meet demand.
I'm just not sure I see my current executive team plans to keep a large PF team sadly.
I wouldn’t be too concerned with specifically the cutback in transferable tax credit for clean energy. Yes, they boost returns on the models but they’ve been a massive pain when it comes to actually qualifying for them. I mean it took the treasury years to release guidance that mildly explained the qualification and attributes for the credits based on the vague language in the actual IRA bill.
However, you’re not wrong that losing pretty much subsidies for the industry will hurt returns on projects since the IRA’s tax credits pretty much reallocated nonresidential private investment towards these types of energy projects. Yet, not everything is terrible since the bill in Congress does make the expensing provisions and corporate rate from the TCJA permanent, which is very good news for the renewables space.
I mean this day was ultimately going to come because these tax credits were never fiscally feasible in the long term, but I mean if someone can make a compelling national security argument against China when it comes to their rapid growth in the renewables sector and their cheap panel price points, then developers could see some more favorable domestic policy be implemented again. Honestly, if I was lobbying, I would be attacking this point severely, especially with the recent “kill switches” found in various inverters and batteries on Chinese panels used in US.
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