Experts warn that rising demand for renewable energy finance could lead to a tax equity shortfall

Experts warn that rising demand for renewable energy finance could lead to a tax equity shortfall

According to speakers at the Power and Renewables Conference held in Wood Mackenzie this week, there is no scarcity of development in demand for renewable energy. However, with rapidly expanding prospects in emerging technologies such as energy storage and undeveloped industry sectors such as commercial-scale solar and community, it’s unclear whether funding will keep up with demand.

As per Patrick Pfeiffer, who serves as the managing director of Statkraft U.S., which is a renewable energy developer, a combination of federal support, state policy, and demand from companies setting voluntary climate goals has formed an “ideal demand message in the market” which is driving the advancement of clean energy projects.

Renewable energy transactions are also attracting an increasing number of investors. Using environmental, social, and governance principles to assess investment prospects has “took off quicker in the financial sector than just about any other phenomenon we’ve seen,” according to Salant. “People couldn’t spell ESG four or five years ago; today, bankers approach me, corporations come to us, and investor interest is tremendous.”

According to Salant, there is space for even more growth in projects that sit between utility-scale and rooftop solar, such as projects for businesses and communities. Moderator Xiaojing Sun, who serves as the senior research analyst at the Wood Mackenzie who focuses on the worldwide PV solar supply chain & technological development, also asked when finance for developing technologies like offshore wind, energy storage, and hydrogen will become more widely available. But, as per Christopher King, who is the managing director as well as co-head of community solar at asset manager Lafayette Square, when — or even whether — that will be determined by the banking sector’s capacity to match up with renewable demand.

According to Salant, there are simply not enough people in finance available to assess all of the viable renewable energy deals that come across their desks. Demand from both project developers and investors also outnumbers the portion of tax equity-based funding currently available in the market. Now, most investment goes to large developers with a proven track record of accomplishment and a network of financial contacts, he added. According to Salant, even if they have a wonderful proposal that investors might be ready to back, new developers or even smaller enterprises are increasingly falling by the wayside.

He believes that providing the direct-pay tax credits, which could provide additional options for smaller entrepreneurs, is the most important development in renewable energy funding now on the table. “There may be a tax equity deficit for the market if direct pay doesn’t succeed,” Sun said, “if for some circumstances direct pay doesn’t pass.”

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