In the years leading up to the assumed step-down of the solar investment tax credit (ITC), a flood of investors began looking at the commercial and industrial (C&I) solar market. Why? Relatively smaller projects would be easier to place in service by a December 31, 2016 deadline and typically provided for higher returns than utility scale assets. On top of that, C&I has been the most untapped sector of the market, and investors were looking to capitalize on potentially higher yields and less competition.
C&I’s long been a tough nut to crack. Given high transaction costs associated with smaller project opportunities, challenges with unrated credit, and a lack of standardization, C&I has seen sluggish growth compared with utility-scale and residential solar. Moreover, tax equity investors have never focused on C&I for individual project investments, and likely never will.
With the extension of the ITC, the investment landscape has shifted. Some investors are feeling less urgency to enter the C&I space. After all, utility-scale projects will have another 5 years of life for the ITC, not to mention commence construction after that. The utility-scale sector of the market is a more mature market than C&I, and less diligence is required per-watt on a project. If this mature market will not sunset as early as previously thought, why not continue to push forward with what’s familiar?
To be clear, we are not suggesting that all investors are shying away from C&I. In fact, we have expanded our sources of capital to include more investors with a strategic interest in distributed generation and expanding their C&I portfolios – most of which are utilities and energy companies.
Instead, expect to see more large, utility-scale procurements in the South, for example, similar to what we’ve seen with Georgia Power and Dominion, and what we expect to see in Alabama and Mississippi soon. For tax equity investors, we see distributed utility projects in the 5 – 50MW space – as the next frontier.
Sol Systems launched a financing solution for utility-scale projects in 2015. To learn more, contact Matt Chou at firstname.lastname@example.org.
This is an excerpt from our February 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 email@example.com
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