Will Commence Construction Language Add More Certainty to the U.S. Solar Market?

21 Feb 2014

Solar project development is a process with varying timetables and degrees of difficulty: from finding a host site, to entering into power purchase agreements, the process can take several years. Any bump along the road can lead to uncertainty in the completion date for an investor or developer, especially for larger utility scale projects.

This uncertain timetable makes the expiration of the 30% Federal Investment Tax Credit (ITC) in 2016 a potentially precarious scenario for parties involved in solar project development. Currently, a project must meet a December 31, 2016 deadline to receive the 30% ITC, and missing this date could lead them to receive only 10%, a significant decrease in returns.

Commence construction legislation should provide security to investors and developers aiming to break ground by 2016

On February 6th, Senators Michael Bennet (D-CO) and Dean Heller (R-NV) introduced the Commence Construction Legislation, which confirms that developers only have to start construction before the ITC expiration date for the full 30% ITC to be monetized. If this moves forward, many in the industry can breathe a sigh of relief knowing that they have some room to meet this deadline.

Critics have claimed that this language is still not strong enough, and that the industry should be advocating to extend the ITC. There is also concern that allowing projects that are only under construction to be eligible creates incentives for developers to “undertake construction” that may not be fully planned or is merely prospective. The language around the rules determining what qualifies as “under construction” will play an important role, as relaxed legislation will likely lead to a oversaturated market of new projects as the expiration date nears. These numerous “faux projects” not only lead to confusion for investors who rely on concrete information, but could lead to overcrowding and underfunding.

To those who follow renewable legislation closely, this extension conversation may sound familiar. ITC and production tax credits (PTCs) have expired and been renewed many times in the last fifteen years. Wind’s production tax credit expired at the end of 2013, and the wind industry is scrambling to see their PTC revived.   In December 2010, Congress voted to extend the Department of Treasury Section 1603, which has been a crucial program for the U.S. solar industry.

Since 1603’s expiration, tax equity investment has been increasingly important, which is partially why Sol Systems and other industry players are hard at work to attract new investors to solar and expand the pool of capital available to solar assets. Sol Systems currently works with banks, insurance companies, and Fortune 100 tax equity investors to place capital in the solar asset class. Developers in need of tax equity or investors interested in solar assets should contact our team at 888-235-1538 x2.

About Sol Systems

Sol Systems is a boutique financial services firm that offers investor clients direct access to the solar asset class and provides developers with sophisticated project financing solutions. Founded in 2008, Sol Systems focuses on meeting the most critical needs of the industry, including SREC monetization, capital placement, tax equity, and New Market Tax Credits. To date, the company has facilitated financing for thousands of projects and facilitated hundreds of millions in investment on behalf of Fortune 100 companies, private equity, family offices and individuals. For more information, please visit www.solsystemscompany.com.

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Daniel Watson

Daniel Watson