Analysis: U.S.

renewables investors see Senate bill

sparking gold rush
reuters.com/business/sustainable-business/us-renewables-investors-see-senate-bill-sparking-gold-rush-2022-08-10

Nichola Groom, Cole Horton, Simon Jessop

A wind farm is shown in Movave, California, U.S., November 8, 2019. REUTERS/Mike

Blake/File Photo/File Photo

Wind, solar, biogas, hydrogen all set to benefit

Broader range of investors seen entering market
Tax perks to help low-income communities, supply chains

LOS ANGELES/NEW YORK, Aug 10 (Reuters) - For the first time, investors seeking to pour
cash into U.S. clean energy projects can count on at least a decade of generous federal
subsidies, offering them long-sought confidence in the staying power of the world’s third
biggest renewables market.

Tax credits for wind and solar projects have underpinned explosive growth in U.S.
installations over the last decade. But they have often had short time horizons, leaving
project developers scrambling to meet looming deadlines and spooking risk-averse investors.

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The long-term tax credit commitments for wind and solar, wrapped up in a $430 billion bill
passed by the U.S. Senate on Sunday, were joined by new credits for energy storage, biogas
and hydrogen. Developers of wind and solar projects will also be able to get more support if
they use U.S.-made equipment or build their projects in poorer areas. read more

"This is going to be a golden period of 10 years, at least," said Keith Martin, an attorney with
Norton Rose Fulbright who works on financing renewable energy projects. "That is a long
horizon for people to plan and really get this transition to clean energy into high gear."

The U.S. House of Representatives is expected to pass The Inflation Reduction Act soon, and
President Joe Biden should sign it into law shortly after that.

Shares of renewable energy companies have soared since Senate Democrats announced a
deal to pass the bill on July 27. The WilderHill Clean Energy Index (.ECO) is up 15% during
that time. The index includes U.S. market players like solar panel maker First Solar
(FSLR.O), residential solar company SunPower Corp (SPWR.O), renewable asset owner
Brookfield Renewable and battery storage company Fluence Energy (FLNC.O), among
others.

Wind and solar accounted for just 12% of U.S. electricity generation last year. But
decarbonizing the nation's electricity sector by 2035, as the Biden administration has
pledged to do, will require far more.

Renewable energy investment hit $215 billion in the United States in 2021, according to the
International Energy Agency, lagging China and Europe. Investors, project developers,
bankers and lawyers said the Inflation Reduction Act will drive a step-change in demand
from a broad range of investors.

'OUR TACTICS HAVE CHANGED'

Shawn Kravetz, president of Esplanade Capital, which manages a solar-focused hedge fund,
said his firm this year has focused mainly on the renewables boom in Europe. U.S. developers
have struggled with pandemic-related supply chain disruptions, import tariff threats and
concerns about links to forced labor in China. The legislation, with its decade of policy
stability, is changing that approach.

"Our tactics have changed because we're seeing more opportunity in the U.S.," Kravetz said.
"The magnitude and scope of the opportunity have just grown."

The top U.S. utility trade group said the bill would help speed up plans by many members to
eliminate carbon emissions from their systems by 2050 because it creates subsidies for
technologies beyond just wind and solar, which have intermittent supply.

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"The expansion of those credits truly gives us more tools that we can use, not only to execute
the plan, but we believe we will be able to accelerate it," Warner Baxter, chair of the Edison
Electric Institute, said in an interview.

For instance Edward Lees, co-head of the environmental strategies group at BNP Paribas
Asset Management, said he expected hydrogen would be "much more attractive," with a tax
credit of up to $3 a kilogram.

Lees said he had increased positions in hydrogen and solar ahead of the vote, betting on the
bill's passage.

To date, most renewable projects have been bankrolled by investors who take a stake in
developments in exchange for the associated tax breaks, so-called tax-equity financing.

Going forward, developers will be able to sell certain credits without entering these
"cumbersome, high-friction partnerships," said Ted Brandt, chief executive of investment
bank Marathon Capital. "That opens up the market and will go a long way towards alleviating
the supply-demand imbalances we've had for years," he said.

Some investors have hesitated to back projects due to uncertain returns, even as the effects of
climate change have grown more apparent, from floods in Kentucky to wildfires in California.
Longer-term tax breaks would "open the floodgates" for more financing, said Tom
Buttgenbach, chief executive of U.S. solar developer 8minute Solar Energy.

"Before this bill, we were looking at one- and two-year extensions on the tax credit while
trying to finance projects that take three to five years to build. For the first time, this gives the
industry and investors certainty for what the financing environment will look through 2034."

Reporting by Nichola Groom in Los Angeles, Cole Horton in New York and Simon Jessop in
London; Editing by David Gregorio

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