July 30, 2012
Authors: Michael Mendelsohn, NREL; John Harper, Birch Tree Capital LLC
In the wake of the 2008–2009 financial crises, tax equity investors largely withdrew from the renewable energy market, resulting in stagnation of project development. In response, Congress established the Treasury grant program pursuant to Section 1603 of the American Recovery and Reinvestment Act (§1603 Program) to offer a cash payment in lieu of a production and investment tax credit. Drawing on insights offered by financial executives active in the renewable energy (RE) market during conference panel discussions and in presentations, direct interviews, and email correspondences, the authors address the potential project financing and market impacts from the expiration of the §1603 Program. With the expiration of the §1603 Program, smaller or less-established renewable power developers will have more difficulty attracting needed financial capital and completing their projects, development of projects relying on newer or 'innovative' technologies will likely slow as traditional tax equity investors are known to be highly averse to technology risk in the projects they fund, and, finally, projects relying on tax equity may be more expensive to develop due to higher transaction costs and potentially higher yields required to attract tax equity.