Taxes No Longer Certain — And That’s Affecting Solar Deals

Even without any specific tax-reform proposals, President Donald Trump’s pledge to revamp U.S. policies is already affecting the solar industry, and not in a good way.

“It’s causing disruptive effects on finance,” Abigail Ross Hopper, president and chief executive officer of the Solar Energy Industries Association, said in an interview Monday at Bloomberg New Energy Finance’s Future of Energy Global Summit in New York. “Costs are going up.”

After Trump’s surprise victory in November, clean-energy proponents worried that the prospect of tax reform would slow wind and solar finance. Investors, they said last year, might opt to wait out the uncertainty. Instead, activity may be accelerating — at least in solar — as developers and investors rush to get deals done before the corporate rate falls.

But developers may have to pay more than they would have before the election.

Part of the reason for the rush: lower corporate tax rates may deplete the supply of tax equity, an esoteric but critical source of financing for wind and solar farms. In such deals, clean-energy developers sell a portion of their projects’ tax credits to companies — often banks and some insurance companies — that can apply the federal credits to their own tax bills. If tax rates fall, investors would have less need for write-offs.

‘Under Water’

Many deals this year are priced assuming corporate tax rates of 25 percent, or even 20 percent. If the rates go lower, financing packages may no longer be as economical for developers, said Daniel Shurey, a New Energy Finance analyst in New York.

“I’ve heard of a number of sponsors who’ve had to end deal negotiations this year because the terms would have pushed the project under water,” he wrote in an email Monday. “They all blame stipulations added by fears of tax reform.”

Solar tax equity totaled about $5 billion last year. There are more than 35 companies that invest in tax equity.

The rush may not be necessary. While Trump, in the run-up to his election, proposed dropping the corporate tax rate to as low as 15 percent from 35 percent, there’s mounting doubt that tax reform will be resolved anytime soon — if at all. Trump still favors a 15 percent corporate tax rate, according to a White House official.

“Every week is: ‘this is going to be the week for tax reform,’” said Hopper, who cited the uncertainty surrounding tax reform as the biggest federal concern for the industry.

Jacob Susman, a Brooklyn-based vice president at EDF Renewable Energy, said in an interview Monday that he’s concerned that deals are becoming more conservative.

“The feeling is, ‘man, tell me what the future is going to be already,’” he said.

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