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What does the ITC extension mean for the investment climate in the U.S.?

On December 18th, the U.S. House and Senate passed the Consolidated Appropriations Act of 2016, which included a multi-year extension of the solar investment tax credit (ITC). Now that we have another 5 years of ITC, here are three basics effects the extension will have on the U.S. solar landscape.

1)      More [expensive] tax equity needed

Depending on who you ask (check out forecasts from UBS, GTM, and BNEF), solar capacity may increase by 30-50% over the next five to seven years, creating a strong, stable investment climate for solar assets. The added supply of solar (as well as the reinstatement of both MACRS and wind’s production tax credit) projects will put tax equity investors in higher demand than ever, as we estimate that somewhere around $10 billion in solar tax equity will be needed annually, on average, over the next five to seven years. To put that in perspective, the solar tax equity market in 2015 was sized at approximately $6 billion. This increased demand for tax equity will have a positive effect on yields for these investors. For investors contemplating developing or expanding a tax equity platform, the time is now.

2)      “New” markets

Before the extension of the ITC, we wrote about new markets that have emerged thanks to falling costs, PPA authorization, and other factors. The extension of the ITC will make it possible for solar to flourish in these new markets, as well as markets that have made a comeback, such as Pennsylvania – assuming each works out its respective localized challenges (e.g. net metering battles, property taxes in the Southeast, and PURPA challenges across the West).

3)      SREC price decline in some markets

With the increase in supply made possible by the ITC extension, some SREC markets may experience downward pressure. Most notably, Maryland will see these effects as costs continue to come down and utility-scale projects become easier to build. On top of that, the solar requirement within the Renewable Portfolio Standard (RPS) is stagnant at 2% beginning in 2020.  The combination will result in ample supply until 2020 and oversupply thereafter.

To protect yourself from SREC risk, Sol Systems offers long-term SREC contracts for as long as 15 years. Contact Kate Brandus at info@solsystems.com for information on pricing.

Full Report Available
Are you an investor interested in a more in-depth analysis of the tax equity market under an extended ITC? Contact finance@solsystems.com to set-up a call with our team.

This is an excerpt from our January edition of SOURCE: the Sol Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail pr@solsystems.com.

ABOUT SOL SYSTEMS

Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 410MW of solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management. Inc. Magazine named Sol Systems on its annual Inc. 500 list of the nation’s fastest-growing private companies for a second consecutive year, ranking it No. 6 in the nation’s top solar companies in 2014. For more information, please visit www.solsystems.com