The solar photovoltaic industry will require US$2020 billion to US$7 billion in tax capacity from external investors in 8. This is the analysis of Michelle Davis, senior analyst at Wood Mackenzie. She also highlights that the competition to secure this investment is fiercer than ever.
“Tax equity for solar projects has received a lot of attention this year. When the coronavirus pandemic first appeared, there was widespread concern that an economic slowdown would result in less income tax available for solar projects. The largest investors in the space, such as JPMorgan, Bank of America or USBank, would have fewer tax obligations to dedicate to solar investments”, commented the expert.
“But the full story is more nuanced. Less fiscal equity available for projects is certainly a concern. But fierce competition for income taxes and a growing solar industry are the most critical factors,” he pointed out.
It's not just about less fiscal responsibility
According to Michelle, as the end of 2020 approaches, solar developers are reporting that less available tax equity from large investors is slowing business.
“Obviously, the total tax obligations of major solar tax equity investors exceed the $7-8 billion required for all photovoltaic projects coming online this year. But these investors typically allocate a certain amount of equity to any given investment. And in the current economic climate of 2020, this allocation is coming under more pressure than ever before,” he commented.
According to her, utility solar is forecast to grow 66% this year compared to 2019. “Investors are reporting that more deals are coming across their desks than ever before. In our conversations, one even characterized it as 'drinking from a fire hose'. Despite today’s rush, solar tax equity will become less important for financing solar energy projects starting in 2022,” she highlighted.
Fiscal future
For the Wood Mackenzie analyst, as the investment tax credit decreases, companies deploy equipment with limited shelter and solar energy costs continue their downward trend. “Consequently, demand for solar tax equity will decline.”
“The era of tax credit monetization that dictates the financing of solar projects is slowly coming to an end,” concluded Michelle.
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