ANALYSIS-U.S. Renewable Energy Investors See Senate Bill Trigger Gold Rush


By Nichola Groom, Cole Horton and Simon Jessop

LOS ANGELES/NEW YORK, August 12 (Reuters)For the first time, investors looking to pump money into clean energy projects across the United States can count on at least a decade of generous federal grants, giving them long-sought confidence in the resilience of the third largest renewable energy market in the world.

Tax credits for wind and solar projects have supported the explosive growth of US installations over the past decade. But they have often had short-term horizons, leaving project developers scrambling to meet looming deadlines and scaring off risk-averse investors.

Commitments to long-term wind and solar tax credits, contained in a $430 billion bill expected to pass the U.S. House of Representatives on Friday, were joined by new credits for energy storage, biogas and hydrogen. Wind and solar project developers will also be able to get more support if they use US-made equipment or build their projects in poorer areas.

“It’s going to be a 10-year golden period, at least,” said Keith Martin, a Norton Rose Fulbright attorney who works on financing renewable energy projects. “That’s a long horizon for people to plan ahead and really kick this clean energy transition into high gear.”

Once the House passes the Cut Inflation Act, President Joe Biden is expected to sign it into law shortly thereafter.

Shares of renewable energy companies have soared since Senate Democrats announced an agreement to pass the bill on July 27. The WilderHill Clean Energy Index .ECO is up 15% during this period. The index includes U.S. market players like solar panel maker First Solar FSLR.Oresidential solar company SunPower Corp SPWR.Oowner of renewable assets Brookfield Renewable BEPC.BLEU and battery storage company Fluence Energy FLNC.Oamong others.

Wind and solar accounted for just 12% of electricity generation in the United States last year. But decarbonizing the country’s electricity sector by 2035, as the Biden administration has pledged, will require much more.

Investments in renewable energy reached $215 billion in the United States in 2021, according to the International Energy Agency, lagging behind China and Europe. Investors, project developers, bankers and lawyers said the Cut Inflation Act will bring about a sea change in demand from a wide range of investors.

“OUR TACTICS HAVE CHANGED”

Shawn Kravetz, chairman of Esplanade Capital, which runs a hedge fund focused on solar power, said his firm has focused primarily on Europe’s renewable energy boom this year. US developers have battled pandemic-related supply chain disruptions, import tariff threats and concerns about links to forced labor in China. Legislation, with its decade of political stability, changes this approach.

“Our tactics have changed because we see more opportunities in the United States,” Kravetz said. “The scale and scope of the opportunity just grew.”

The leading US utility trade group said the bill would help accelerate many members’ plans to eliminate carbon emissions from their systems by 2050 because it creates subsidies for technologies other than electricity. wind and solar, which have an intermittent supply.

“The expansion of these credits really gives us more tools that we can use, not only to execute the plan, but we think we can accelerate it,” said Warner Baxter, president of the Edison Electric Institute, in an interview.

For example, Edward Lees, co-head of the environmental strategies group at BNP Paribas Asset Management, said he expected hydrogen to be “much more attractive”, with a tax credit of up to ‘at $3 per kilogram.

Lees said he had increased his positions in hydrogen and solar ahead of the vote, betting on the bill passing.

To date, most renewable energy projects have been financed by investors who take part in the developments in exchange for the associated tax breaks, called tax equity financing.

Going forward, developers will be able to sell some credits without entering into these “heavy, high-friction partnerships,” said Ted Brandt, managing director at investment bank Marathon Capital. “It opens up the market and will go a long way to smoothing out the imbalances between supply and demand that we have had for years,” he said.

Some investors have been hesitant to back projects due to uncertain returns even as the effects of climate change have become more apparent, from floods in Kentucky to wildfires in California. Longer-term tax breaks would “open the floodgates” for more funding, said Tom Buttgenbach, chief executive of US solar developer 8minute Solar Energy.

“Before this bill, we were looking at one- and two-year extensions of the tax credit while trying to fund projects that take three to five years to build. For the first time, this gives the industry and investors certainty that environmental funding will last until 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)

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