Analysis: U.S. renewables investors see Senate bill sparking gold rush

Brookfield Renewable Partners LP

12/08/2022 17:52

* Wind, solar, biogas, hydrogen all set to benefit
    * Broader range of investors seen entering market
    * Tax perks to help low-income communities, supply chains

    By Nichola Groom, Cole  Horton and Simon Jessop
    LOS ANGELES/NEW YORK, Aug 12 (Reuters) - For the first time,
investors seeking to pour cash into U.S. clean energy projects
can count on at least a decade of generous federal subsidies,
offering them long-sought confidence in the staying power of the
world’s third biggest renewables market.
    Tax credits for wind and solar projects have underpinned
explosive growth in U.S. installations over the last decade. But
they have often had short time horizons, leaving project
developers scrambling to meet looming deadlines and spooking
risk-averse investors.
    The long-term tax credit commitments for wind and solar,
wrapped up in a $430 billion bill expected to receive final
passage in the U.S. House of Representatives on Friday, were
joined by new credits for energy storage, biogas and hydrogen.
Developers of wind and solar projects will also be able to get
more support if they use U.S.-made equipment or build their
projects in poorer areas.   urn:newsml:reuters.com:*:nL1N2ZJ02X
    "This is going to be a golden period of 10 years, at least,"
said Keith Martin, an attorney with Norton Rose Fulbright who
works on financing renewable energy projects. "That is a long
horizon for people to plan and really get this transition to
clean energy into high gear."
    Once the House passes the Inflation Reduction Act, President
Joe Biden should sign it into law shortly after that.
    Shares of renewable energy companies have soared since
Senate Democrats announced a deal to pass the bill on July 27.
The WilderHill Clean Energy Index  .ECO  is up 15% during that
time. The index includes U.S. market players like solar panel
maker First Solar  FSLR.O , residential solar company SunPower
Corp  SPWR.O , renewable asset owner Brookfield Renewable
 BEPC.BLUE  and battery storage company Fluence Energy  FLNC.O ,
among others.
    Wind and solar accounted for just 12% of U.S. electricity
generation last year. But decarbonizing the nation's electricity
sector by 2035, as the Biden administration has pledged to do,
will require far more.
    Renewable energy investment hit $215 billion in the United
States in 2021, according to the International Energy Agency,
lagging China and Europe. Investors, project developers, bankers
and lawyers said the Inflation Reduction Act will drive a
step-change in demand from a broad range of investors.
    
    'OUR TACTICS HAVE CHANGED'
    Shawn Kravetz, president of Esplanade Capital, which manages
a solar-focused hedge fund, said his firm this year has focused
mainly on the renewables boom in Europe. U.S. developers have
struggled with pandemic-related supply chain disruptions, import
tariff threats and concerns about links to forced labor in
China. The legislation, with its decade of policy stability, is
changing that approach.
    "Our tactics have changed because we're seeing more
opportunity in the U.S.," Kravetz said. "The magnitude and scope
of the opportunity have just grown."
    The top U.S. utility trade group said the bill would help
speed up plans by many members to eliminate carbon emissions
from their systems by 2050 because it creates subsidies for
technologies beyond just wind and solar, which have intermittent
supply.
    "The expansion of those credits truly gives us more tools
that we can use, not only to execute the plan, but we believe we
will be able to accelerate it," Warner Baxter, chair of the
Edison Electric Institute, said in an interview.
    For instance Edward Lees, co-head of the environmental
strategies group at BNP Paribas Asset Management, said he
expected hydrogen would be "much more attractive," with a tax
credit of up to $3 a kilogram.
    Lees said he had increased positions in hydrogen and solar
ahead of the vote, betting on the bill's passage. 
    To date, most renewable projects have been bankrolled by
investors who take a stake in developments in exchange for the
associated tax breaks, so-called tax-equity financing.
    Going forward, developers will be able to sell certain
credits without entering these "cumbersome, high-friction
partnerships," said Ted Brandt, chief executive of investment
bank Marathon Capital. "That opens up the market and will go a
long way towards alleviating the supply-demand imbalances we've
had for years," he said.
    Some investors have hesitated to back projects due to
uncertain returns, even as the effects of climate change have
grown more apparent, from floods in Kentucky to wildfires in
California. Longer-term tax breaks would "open the floodgates"
for more financing, said Tom Buttgenbach, chief executive of
U.S. solar developer 8minute Solar Energy.
    "Before this bill, we were looking at one- and two-year
extensions on the tax credit while trying to finance projects
that take three to five years to build. For the first time, this
gives the industry and investors certainty for what the
financing environment will look through 2034."

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 (Reporting by Nichola Groom in Los Angeles, Cole Horton in New
York and Simon Jessop in London; Editing by David Gregorio)
 ((simon.jessop@thomsonreuters.com; +44 (0) 207 542 5052;
Reuters Messaging: Reuters Messaging:
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