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The Sol SOURCE: March 2018
The Sol SOURCE: March 2018
The Sol SOURCE is a monthly journal that our team distributes to our network of clients and solar stakeholders. Our newsletter contains trends and observations gained through monthly interviews with our team, and it incorporates news from a variety of industry resources.
Below, we have included excerpts from the March 2018 edition. To receive future Journals, please subscribe or email SOURCE@solsystems.com.
STATE MARKETS
Massachusetts – Massachusetts, is the number six state for solar development according to the most recent GTM and SEIA report. However, the state continues to experience unique challenges for a few reasons. First, interconnection remains a challenge for most developers because the SMART program will have so many standalone systems that will interconnect in front of the meter. This is largely because net energy metering (NEM) caps have not been raised, making behind-the-meter incentives less impactful. And, although highly variable depending on each project, the grid will need significant upgrades to make room for this solar. Pre-applications for interconnection already demonstrate the need for costly upgrades, both in price and in time, which in turn hurt project economics, even with a robust solar incentive program. In addition, competition is fierce among developers and many potential solar customers are familiar with the very attractive economics of the SREC I and SREC II program. With SMART tariffs nearly finalized, we expect the market to catch up in terms of its expectations, and of course, despite these challenges, Massachusetts remains one of the brightest solar markets in the country.
New York – Earlier this month, NYSERDA announced that 22 utility-scale solar projects – across 646MW – had been awarded contracts under the state’s latest Clean Energy Standard solicitation. This is no small feat. Why?
In past solicitations, solar was awarded *one* contract, or more commonly, no contracts. Therefore, until very recently, utility-scale solar in New York was almost non-existent. This is because the Clean Energy Standard procurement process – formerly the Main Tier Solicitation under the RPS – required for solar to compete with other technologies mainly on price and other “squishy” economic development criteria. This is why solar had a hard time competing with hydro, wind, and even fuel cells and anaerobic digesters in years past.
What made this year different? After the initial implementation plan for the Clean Energy Standard, the national Solar Energy Industries Association worked closely with NYSERDA to push for the procurement process to have a better diversity of fuel sources. Under REV, they argued, grid benefits and distribution systems’ needs, not just price, should play a role in the evaluation of projects. As a result, renewable energy projects could score points with new “project viability” criteria (which were awarded to projects that were more or less ready to go and developed by companies with an established track record to bring projects to completion). Other changes included new points for operational flexibility and peak coincidence to account for grid benefits, as well as economic development benefits.
Big props to the state affairs team at SEIA for their leadership, and for showing us once again that advocacy works. Thanks to their advocacy, coupled with increasing cost declines in the solar space, utility-scale solar won big in this year’s solicitation. And, with the CES results and Megawatt Block reforms underway, solar progress is happening in the Empire State.
For a refresher on the Clean Energy Standard, check out this earlier issue of SOURCE, or a summary on our blog.
Developers in New York holding a CES award but in need of PPA offtake can contact colin.murchie@solsystems.com. We are also interested in New York CES or NYPA projects for our Helios fund; developers can contact Jessica.robbins@solsystems.com for more info.
Virginia – At the beginning of March, Governor Northam signed legislation that deemed over 5.5 GW of utility solar and wind “in the public interest” in early March, with up to another 500MW of rooftop solar. Although this provision was part of controversial omnibus legislation (check Ivy Main’s Power to the People blog for a full summary), this is a still a hard-earned victory for Virginia solar advocates, namely MDV-SEIA and its Rubin Group process, which involved solar companies, utilities, coops, and the environmental community. And, with only 619.53MW installed to date, 5GW+ is nothing to bat an eye at. However, we’d note that there’s a lot of hard implementation work to come – including determining how much of that 5.5 GW is developed at all, and how much is solar.
Nevertheless, with over 7GW in the interconnection queue, the subsequent procurements will provide a critical relief valve to this oversupply of projects. Stay tuned for implementation, and get involved by contacting MDV-SEIA.
SOLAR CHATTER
- The much-hyped domestic module manufacturing “revitalization” after the Section 201 tariffs is already losing steam. As one example, Jinko revised their investment commitment to 1/8 of what was planned, and jobs estimate to 1/4 of what was planned. In other modules news, more manufacturers are moving in the direction of high efficiency modules, and interest in bifacial modules continues to grow. For a refresher on bifacial modules, refresh with an earlier edition of SOURCE.
- After 20+ years of federal support, DSIRE, the free, go-to database for solar policies incentives, has had its funding discontinued. The North Carolina Clean Energy Technology Center is asking for tax-deductible donations to keep this critical source of information free to the public. Learn more at go.ncsu.edu/givencclean.
- It’s been almost two years since community solar legislation passed in Oregon, and after a lengthy regulatory process to implement the law, the program has yet to open. Notably, the bill credit rate for community solar projects has still not been determined. We’re hopeful that this will be wrapped up by the end of the spring, but in the meantime, the Oregon program is another example that illustrates that with community solar, the devil is in the details.
- We are spending an increasing amount of time talking to prospective solar customers about solar carports given their economic viability in several key markets. We’ve had some customers focus more on building something with attractive aesthetics, even a greenery, as a primary consideration for the solar carport structure rather than maximizing their lease payment or electricity savings. What are some other considerations for carports? We dove deep in February’s SOURCE
ABOUT SOL SYSTEMS
Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.
Over the last eight years, Sol Systems has delivered 650MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.
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Standing Out from the Wall of Money: Introducing Helios
Standing Out from the Wall of Money: Introducing Helios
Trends in solar finance come and go. We saw the YieldCo boom, followed by the YieldCo bust, followed by YieldCo sales (see: Terraform and Brookfield, 8point3 Energy Partners and Capital Dynamics, NRG Yield and Global Infrastructure Partners, all very recent news). We saw a shortage of tax equity capital – the bottleneck of project finance for years – recently give way to project undersupply, driven by the ITC “hangover” and challenges to PURPA implementation across a number of states. Finally, the latest trend we’ve seen has been the “wall of money” cresting over the industry. Primarily, this has taken the form of long-term ownership dollars chasing assets to structure and hold for the long term. Frankly, there is more money in the space chasing projects than ever before. But what differentiates these funds, and what makes a financing partner a competitive partner?
Last month, Sol Systems launched our new fund, called Helios, in partnership with Nationwide Insurance, with a mandate to acquire, develop, build, and own utility and commercial solar assets across the U.S. with a first-year target of approximately 330MW of capacity. But while there may not be a shortage of interest in the solar asset class, we do recognize a lack of differentiated dollars, primarily on asset valuation and investment timing, available to project developers aiming to sell. Through Helios, we see an opportunity to provide differentiated acquisition capital for portfolios starting at 50MW and larger.
Differentiated Dollars
Not all capital is created equal. It’s true that many investors now entering the solar investment space are doing so with return expectations of circa, say, 2013. But, with billions of dollars of proven investments out the door, solar is no longer by any stretch of the imagination a speculative asset class. However, even those investors with appropriate return hurdles do not value assets equally. Post-PPA and useful life assumptions are two examples where the unevolved investor (one that values only contracted revenue, unreasonably discounts post-PPA revenue, or cuts short the project’s useful life) will fail to compete.
Another important factor is the investor’s own internal ability to value depreciation. Helios is a unique source of capital in part because it is tax advantaged. Even if a sponsor can raise tax equity, they are still left with a material amount of depreciation that cannot be absorbed by their tax partner. Nationwide as a tax efficient investor is able to arrive at a lower comparative cost of capital by valuing these benefits, and as an experienced solar investor in partnership with Sol Systems, is able to appropriately evaluate risks in valuing solar assets.
Evolved Investors
Depth of knowledge and experience in this asset class are also critical to make investments in the asset class, especially earlier in the development cycle Sophisticated investors, like Helios , will underwrite assets and advance capital for projects once they reache certain development milestones, like interconnection or PPA deposits, and well before NTP is achieved. This helps developers bridge the painful development capital gap, and milestone acquisition payments allow developer-EPCs to build assets without self-funding construction. Also, to the extent you are discussing your portfolio with an investor you should understand the timeline of their investment thesis. A multi-year fund, like Helios, is able to look past the (ever fast approaching) year-end cliff, investing in multi-year portfolios and offering execution certainty for developers looking to plan past the current development crunch.
Connect with Us
Are you a developer with a project that can benefit from financing from Helios? We are investing in multiple geographies, and are currently reviewing pipeline in Oregon, North Carolina, South Carolina, Tennessee, Minnesota, Rhode Island, and PJM, and are also interested in New York, Illinois, Michigan, Massachusetts, and Texas. Projects do not need to place in service in 2018. For additional questions or to submit project pipeline for review, please contact Jessie Robbins, Director of Structured Finance, at jessie@solsystems.com.
This is an excerpt from the March 2018 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar industry. To receive future editions of the journal, please subscribe.
ABOUT SOL SYSTEMS
Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.
Over the last nine years, Sol Systems has delivered 650MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.
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New School or Old School, All Solar Customers Occasionally Need a Refresher Course
New School or Old School, All Solar Customers Occasionally Need a Refresher Course
This is an excerpt from the March 2018 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar industry. To receive future editions of the journal, please subscribe.
With an average annual growth rate of 59% over the last decade according to SEIA, the U.S. solar market has begun to establish itself as a lasting market. Despite trends of overall growth, different states have varying levels of maturity. There are early mover markets like New Jersey, Massachusetts, and California which were quick to put in place renewable energy standards and incentives to encourage the deployment of solar. Many of these early-mover states have become more saturated with solar development (and companies), and their customer base has become more sophisticated.
There is another subset of states, aside from the established. They are the new and emerging markets. As solar costs have continued to decrease and compete with other fuel sources, more states are beginning to adopt legislation to promote the technology. For example, Illinois will soon become a top market with the passage of the Future Energy Jobs Act. Illinois is accompanied by other states like Minnesota with its community solar program leading the way and New York with its updated Megawatt Block program.
While prospective solar customers in established markets have precedent, resources, or even peers to call for advice about pursuing solar, those in new markets may not have as many references to turn to when deciding whether or not to go solar. Regardless, whether a market is mature or in its early days, education is still necessary for ensuring potential customers understand their investment options. We’re here to give a crash course.
Solar 101 – Solar Is Not Expensive
Many myths exist about going solar (remember when a North Carolina resident was quoted saying that solar would take up the sun needed to grow crops?). A little research busts most solar myths, but one remains persistent each time a new market opens and customers are approached for the first time. “Solar is expensive and requires a large upfront deployment of capital.”
This isn’t true. First off, the price of solar has been continuously decreasing. According to SunShot, from 2010-2017, modeled system prices fell 15–26% per year. In addition to decreasing prices, there are also several options available to customers looking to bring solar into their day-to-day electricity production that don’t require a large amount of money upfront. Cash deals – or buying a system outright - are an option, but customers also have the option to sign power purchase agreements or site leases.
With the latter two options, customers can commit to clean energy without a large upfront capital expenditure. With a power purchase agreement (PPA), customers have the option to lock into a stable electricity purchase price for a solar facility’s production over a term as long as 25 years; the rate one pays for solar is often lower than the existing electricity bill. This can be done for facilities both on the customer’s property itself (i.e. on the roof, on vacant land, or over a parking lot as a canopy structure), or offsite on another piece of land. Leases work similarly, but rather than paying for the electricity, the customer is paid a set amount for the use of their space to build a solar facility. This is a model we are seeing more in states like Massachusetts, where the new Solar Massachusetts Renewable Tariff program allows developers to sell energy from a project directly to the local utility while offering a site lease to the customer. For a refresher on whether a system purchase or third-party financing arrangement is best for you, check out an earlier edition of SOURCE where we compare the pros and cons of each.
Solar 201 – Is Going Local Always Best?
In looking at who can bring a project to fruition, customers should consider several factors when looking at developers to ensure that the project will actually be built. The strength of the engineering team, financing capabilities, past track record, and overall reputation should all be considered.
In emerging markets, local players may be newer with less experience, while an out-of-state player may have a lot of experience and proven track record. For projects in emerging solar markets, perhaps consider working with an out-of-state company as they may be the best fit to seeing your project through. There is also space to do work with both regional and non-regional parties through working with local installers and perhaps more sophisticated, non-regional financiers. In either case, always consider the counterparty’s execution capability, and we suggest buyers request a summary of any and all projects that weren’t completed.
Solar 301 – Do You Know as Much as You Think?
Established markets have their own set of challenges regarding customer knowledge base. With these markets, as mentioned earlier, the potential customer is likely more sophisticated in their base knowledge of their state’s market. (For example, in Massachusetts you can be driving around, and you’ll sometimes see an ad for a solar installation company. How often does that happen in other states?) If these mature-market customers haven’t already adopted solar, they likely have at least been pitched solar and have some expectations in their head about the financials. If these were pitches were made in the earlier days of a solar program expectations may be unrealistic. Often as programs mature, solar incentives decline as the technology becomes more cost competitive. This can lead to expectations that are based on earlier, higher incentives that are currently unrealistic. Unfortunately, there is also high competition in these states, which can mean a race to the bottom in terms of earlier-quoted pricing that also set sets an unrealistic expectation for customers involved.
As markets become saturated, customers need to keep this in mind. Incentive structures do change. Several states have seen changes to their markets recently. New Jersey and Pennsylvania have seen potential changes to their renewable portfolio standard and Massachusetts is transitioning to its Solar Massachusetts Renewable Target Program (SMART). Shifting state policy is important for customers to be aware of and can either make previous numbers quoted too low or too high if policy became more favorable. What incentives exist and what they look like are key things for a potential solar customer to be aware of regarding their investment and ability to identify realistic numbers.
Similarly, as programs become more saturated so does the grid. As more solar comes onto the grid, more enhancements need to be made and this can lead to a different outcome than a customer’s original price expectations. Sometimes the costs for necessary interconnection upgrades can fall on the project and increase the price of an investment.
Always do your Homework
Whether you are a potential solar customer in a market that is new to solar or where solar has an established presence, always do your homework. State governments that oversee the programs are a good place to start in terms of knowing what incentives exist and what your options are. There are also databases out there like DSIRE which help aggregate information on incentives available or non-profits like Solar United Neighbors to help potential customers navigate the choice to go solar. In all markets, it is important to find a developer partner you trust to answer your questions. Whatever stage market you are in, we're happy to help guide you through the process. You can contact us at info@solsystems.com.
ABOUT SOL SYSTEMS
Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.
Over the last nine years, Sol Systems has delivered 650MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.
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Can Solar Powered Carports Alleviate Land Use Concerns?
Can Solar Powered Carports Alleviate Land Use Concerns?
Greenfield development, either through utility-scale solar or smaller commercial solar arrays on properties of vacant farmland, schoolyard fields, and wastewater treatment facilities has grown rapidly, earning solar the nickname of the "new row crop." Solar’s growth has provided new income for landowners, has led to the creation of an industry that now employs over 250,000 people in the U.S., and is critical for reducing our reliance on fossil fuels.
Despite the positive economic, social, and environmental benefits of solar energy, arguments against the use of any ground-mounted solar, that it will harm ecosystems or reduce the amount of available farmland, are still being made. Some are concerned that allowing solar on agricultural land will encourage an overproduction of energy and underproduction of food. Others, including many landowners, see solar as a way to hold on to family-owned land by securing long-term, consistent revenue through a land lease instead of uncertain income based on crop yields. Not to mention, solar supports pollinator-friendly habitats, which show that 95% of the vegetation around a solar farm can be preserved.
Still, concerns over land use and solar are surfacing in new markets like Illinois, where legislation has been introduced to require Agricultural Impact Mitigation Agreements (AIMA) for all solar projects above 500kW. These requirements already exist for wind projects in the state, but wind projects have to be on open land, while solar projects don't need to be and are require less space. We'll see how this one plays out in the coming months.
Pushback against ground-mounted solar is nothing new for the industry. Sol Systems has previously analyzed the various conflicts over land use and solar development, including the rise of Certificate of Public Convenience & Necessity (CPCN) requirements in Maryland and limits to ground-mounted solar in New York. More recently, the SMART program in Massachusetts has discouraged ground-mounted solar through a greenfield subtractor for ground-mounted projects. The program has also encouraged alternative forms of solar projects through adders for rooftop, carport, and even floating solar.
Carports: Turning Existing Space into a Solar Power Plant
While land use will continue to be an issue for the solar industry in ground-mounted projects, advances in solar canopy, or carport, technology has created opportunities to avoid the conversation on land use altogether. Parking lot owners can add a canopy covered with solar panels to their lot, providing shade and snow or rain cover for parking users. Additionally, carports allow a property owner to maximize the value of space that is currently set aside for parking without losing the area's existing functionality.
While an appealing option, especially for those concerned about greenfield development, carports are expensive, as they require additional steel structuring. Still, states can encourage carport incentives to balance land use concerns in the design of their solar programs. One of the best incentive landscapes for carports has been in Massachusetts, where carports have been explicitly incentivized through a $0.06 tariff adder. Though Massachusetts may not be the cheapest place to build carports given the need to withstand significant snow loads, the SMART carport incentive shows the Department of Energy Resources’ (DOER) continued commitment to encouraging the use of carports; they also provided an extra incentive for carports under SREC II, their preceding incentive regime.
Designing a Good-Looking Carport to Fit a Customer’s Needs
Even when you set aside the additional costs of a carport, many potential solar carport customers have raised questions about the aesthetics and operational impact of carports. Fortunately, there are many ways for a solar developer to fit the carport project to the needs of the site and customer. For Class A real estate buildings, aesthetics are always a priority. Aesthetic customization for carports includes decking on the underside of the carport to display a company's logo, custom column colors, and premium finishes like powder-coating on the columns. While these premium carport features come at a higher price, they are a great way for Class A real estate properties to go solar while maintaining their aesthetic standards and offering tenants parking amenities like shade, snow protection, and LED lighting at night.
Carports: Operational Concerns
[caption id="attachment_5723" align="alignright" width="300"]
Photo credit: UMass Amherst[/caption]
On the operational side, most property owners have questions about snow removal, re-paving the parking lot, and maintaining the number of parking spaces. In Massachusetts, there are a few ways to handle snow-related challenges, including a snow guard and dual-tilt or "y-shaped" canopies. With a guard, any snow that lands on the carport will remain there until it melts, and the guard prevents it from falling onto the parking lot in a sheet. A dual-tilt canopy allows the snow to collect in the middle of the canopy, where it can melt. Sol Systems has used dual-tilt canopies at our recently-completed project at UMass Amherst (pictured here). For customers who are concerned about water management, the carport can also be equipped with gaskets to divert any snowmelt from the canopies.
What Happens if I Need to Re-pave My Parking Lot?
When customers ask about repaving their lots, they are often concerned that canopies will preclude them from repaving or that the process will be more onerous once canopies are installed. The experience from our engineering and delivery team has been that the parking surface can be replaced once carports are installed because carport clearances can allow large vehicles to pass underneath. Plus, if the lot is resurfaced after the installation, the parking lot will be the most aesthetically-pleasing with brand new carports and a freshly-paved surface.
Finally, though many customers are concerned about losing parking spots to a carport project, carport projects maintain parking capacity, rather than decreasing it. Carports are installed in line with the existing parking rows, and columns are placed similarly to a lamppost, so they don't preclude cars from parking in a spot.
Overall, though carports are sometimes viewed as a hassle, they are a great way to increase utility in an area that property owners may not have previously considered. Have a parking lot you're interested in leasing? Contact us at anna.noucas@solsystems.com.
This is an excerpt from the February 2018 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar industry. To receive future editions of the journal, please subscribe.
ABOUT SOL SYSTEMS
Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.
Over the last nine years, Sol Systems has delivered 650MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.
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Federal Solar Policy in 2018: Smoother Waters on the Horizon?
Federal Solar Policy in 2018: Smoother Waters on the Horizon?
This is an excerpt from the February 2018 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar industry. To receive future editions of the journal, please subscribe.
For the solar industry in 2017, many a federal policy storm lurked on the horizon, leaving the industry to navigate through uncertain and choppy waters. Suniva and SolarWorld's Section 201 trade case and the potential resulting tariffs, alongside threats from tax reform which finally barreled its way through Congress in late 2017 both created uncertainty in the market.
President Trump has now made his decision on the 201 trade case in the form of a 30 percent tariff on imported CSPV solar cells and modules. This tariff will decline by 5 percentage points each year over a four-year period with an allowance of 2.5GW of solar cells to be imported each year tariff-free. Overall, the ruling was perhaps better than the industry had begun to fear and ended months-long speculation, but there are still many pending questions in its wake. The same could be said for tax reform. While the corporate tax rate was lowered, giving investors less tax appetite to utilize the investment tax credit, the preservation of the tax credit itself has left solar a viable option for the remainder of tax liability investors are looking to offset.
However, even with the new overarching policies in place, these 201 and tax reform "storm clouds" have by no means dissipated in 2018. Although there is finally certainty on what these new policies are, there is remaining hesitation on the extent of their effects.
Section 201 Tariffs – How is the Market Reacting Post-Decision?
With the tariff decision now released, the industry has started doing the math on its effects. While the initial numbers aren't catastrophic, they're not great either. Based on analysis by GTM Research, overall market growth will likely be 11 percent below what it would have been without tariffs, but what's really lost is new entrants to the market. Nascent state solar market like those in the Southeast or ones simply trying to break in may not have the opportunity to do so now. States with more favorable and entrenched policies, such as California, won't be as negatively affected, likely only seeing a 7 percent decline. This contrasts with states that are more recent entrants into the solar markets, such as Montana or Idaho, that lack substantial incentives such as a renewable portfolio standard (RPS) or state-level tax credits that could help soften the blow.
However, solar developers aren't the only ones facing a decline in growth due to the tariffs. Many international manufacturers are feeling the pressure as well. Canada and Singapore have already requested exemptions, and the Europeans and Chinese have requested consultations with the World Trade Organization, which is the first stage of formal dispute resolution. Alongside countries, certain companies, SunPower being the largest to date, are also considering filing for exemption. Exemptions could provide some relief to the price increases but are by no means guaranteed.
There is also potential for the tariffs to result in their stated intent: growth in U.S. solar manufacturing or the movement of foreign-owned companies to the U.S. Recent consensus on the topic is that the tariffs are not strong enough or long-lasting enough to cause this on a large scale. However, some companies have at the very least indicated that they are exploring options. Jinko Solar is one company that has begun to toy with the idea of setting up U.S. operations.
Despite what we know on the rulings so far, the brunt of the tariffs won't begin to be felt until after 2018 given that many U.S. companies – especially larger players who were able to make big purchases pre-decision - currently have 2GW of tariff-free modules reserved for 2018 projects. Once these reserves start to be placed into projects and new panels are needed, we will begin to get a clearer picture regarding pricing and new project pipeline.
Tax Equity in 2018 – Déjà Vu?
Pricing and project pipeline is also a key topic of concern for tax equity in 2018. As we've mentioned before, 2017 was a year of challenges to the tax equity status quo. The uncertainty of tax reform initially made investors hesitant to enter the market in early 2017. When most investors began seeking opportunities in earnest around April of last year, there was a lack of available projects for same-year investment tax credit deployment. This was further exacerbated when the 201 trade case was filed.
In the wake of tax reform and the 201 tariffs, the tax equity market may see similar themes in 2018. Investors are updating pricing and terms in the wake of tax reform, with overall pricing decreasing due to the lower tax rate. This pricing could drop even further if additional investors stay out of the market due to a lack of tax appetite. The number of investors that will play seriously in the market this year, much like at the beginning of 2017, is still unknown. Some are still waiting for the final word from their CFOs on what, if any, their tax appetite will be; others are still digesting BEAT and other tax reform changes.
If uncertainty from tax equity continues, it may drive some sponsors to seek to delay build out of pipeline until 2019. Developers may seek to take advantage of expected lower build costs in the future, making a bet that costs continue to fall, or the price impact from the 201 trade case fades or is repealed at the World Trade Organization. Not all sponsors have the luxury of extending project timelines, however, as some deals may be restricted by utility or PPA deadlines, or a sponsor’s own cash flow needs.
Despite headwinds in 2017, JP Morgan estimates the total wind and solar ITC market dropped from $11bn to $10bn (with about half of that decline attributable to solar ITC deals). Analysts expect 2018 to be roughly the same, finally returning to a growth path in 2019.
Setting a Course Forward
Federal changes have left a lot of questions about the future of solar development in the U.S. Nevertheless, the solar industry is moving forward in the wake of these questions. With no major decisions now on the horizon, we can find ways to make deals work under this new regime. The main drivers behind solar’s growth have not faded, and more and more companies are pursuing renewables as studies continue to show that consumers are demanding it. If your company or organization is looking to go solar or you have more questions regarding the recent changes at the federal level, don't hesitate to reach out to the team at info@solsystems.com.
ABOUT SOL SYSTEMS
Sol Systems, a national solar finance and development firm, delivers sophisticated, customized services for institutional, corporate, and municipal customers. Sol is employee-owned, and has been profitable since inception in 2008. Sol is backed by Sempra Energy, a $25+ billion energy company.
Over the last nine years, Sol Systems has delivered 650MW of solar projects for Fortune 100 companies, municipalities, universities, churches, and small businesses. Sol now manages over $650 million in solar energy assets for utilities, banks, and Fortune 500 companies.
Inc. 5000 recognized Sol Systems in its annual list of the nation’s fastest-growing private companies for four consecutive years. For more information, please visit www.solsystems.com.