During our recent webinar, Achieving Sustainability Goals in Times of Uncertainty, John Powers of Schneider Electric and Keith Martin of Norton Rose Fulbright discussed the impacts of recent regulatory uncertainty on the U.S. renewable energy market. The conversation was specifically tailored toward impacts for commercial and industrial (C&I) corporations, many of which are considering renewable power purchase agreements (PPAs) as an anchor strategy to achieving renewable energy and carbon reduction goals.
The quick skip to the punchline—there’s no need to slow down and every reason to act fast.
Below is a summary of key takeaways and recommendations for C&I renewable energy buyers coming out of this webinar:
Corporate Tax Reform & Renewable Tax Credits
Early iterations of House and Senate drafts of the tax reform bill contained provisions which threatened to seriously injure the U.S. renewable energy industry. One such provision suggested rolling back the production tax credit (PTC) to 1992 levels, while eliminating the 10% investment tax credit (ITC). Together, these tax credits have made up a significant portion of the total return on U.S. utility-scale renewable energy projects.
To the benefit of the renewable energy industry and corporate buyers, both the PTC and ITC remained unchanged in the final bill. However, this serves as a reminder that regardless of tax reform, the PTC is already on a phase -out schedule, leaving limited time to accomplish renewable PPAs that capture the full value of the tax credit. For companies who want to see the best possible wind power pricing, this constrained timeline makes the start of 2018 the key time to initiate renewable PPAs. Wind power PPAs signed no later than the beginning of 2019 will qualify for the full value of the PTC. Considering the time required to vet options, gain internal buy-in, and negotiate terms, focusing your efforts on identifying opportunities over the next 6 months will be critical to companies who wish to secure this value. If you’re considering a wind power PPA, we encourage you to act now.
Another concerning provision, which did make it into the final bill in part, is the Base Erosion Anti-Abuse Tax (BEAT). Though the true impact will be unclear until it takes effect in the market, the worry with BEAT is that it could leave financial institutions (who are key partners for developers building new renewable projects) with a smaller pool of tax equity available for renewable project investment. Keith Martin, who has been a guiding voice for stakeholders in the renewable energy industry throughout the tax reform situation, provided key insights that suggest that a minority of tax equity investors say they are actually exposed to this risk. As a result, C&I renewable energy buyers should not expect a significant impact on renewable PPA prices because of BEAT.
Grid Resilience Ruling
At the end of September in 2017, the U.S. Department of Energy (DOE) issued a Notice of Proposed Rulemaking (NOPR). This NOPR recommended that to ensure grid reliability, coal and nuclear plants should be provided full cost recovery for operations—essentially a guaranteed profit for ‘resilience-building’ generation. The outcome of such a mandate would have resulted in higher overall electricity costs for customers. The Federal Energy Regulatory Commission (FERC) unanimously declined the DOE’s NOPR, leaving the issue of reliability up to regional grid operators. While there is still some chance of regional grid regulators enacting reliability rules, Keith and John agreed that this was the appropriate ruling to preserve the competitiveness of the energy market in general.
As a result of the Suniva trade case, on January 22nd, 2018, President Trump enacted a 30% tariff on imported solar panels that will step down by 5% per year over the next four years. The intent of the tariff was to temporarily correct the undue pressure placed on domestic solar manufacturers from imports, but in reality the tariff has been predicted to do more harm than good for the U.S. renewable energy industry. This is because inexpensive imported panels have built the foundation for a thriving solar industry in the U.S. by creating economies of scale that have made solar power economically competitive with other forms of generation.
Low-cost panels have also led to a robust workforce of over 374,000 Americans working in solar, from installers to technicians to salespeople. The president and CEO of the Solar Energy Industries Association (SEIA), Abigail Ross Hopper, notes that as prices increase as a result of the tariff, the industry stands to lose 23,000 jobs in 2018, with continued job loss through 2021, when the tariff expires.
As far as potential effects on prices of renewable PPAs, John and Keith agreed that even before a tariff was official, solar developers had begun stockpiling solar panels to avoid future price increases. Bids we have received for solar PPAs since the tariff was announced have so far seen little disruption. There are still many factors that will determine how U.S. solar fares through this temporary price increase, such as region, the chance of retaliatory tariffs, and negotiations pertaining to countries and companies that have standing free trade agreements with the United States, but in general, we have seen corporate buyers proceeding forward.
The Bottom Line
When asked what he believes corporate buyers should be thinking about in 2018, given the relative non-issue of regulatory reform, Keith was clear:
- Get yourself a renewable energy advisor. The market is too complex and changes too rapidly to navigate on your own.
- Know where electricity prices are going so you can make informed decisions on your green and brown power buying strategy.
- Understand what deadlines you face, such as the PTC expiration, and plan accordingly.
The industry has weathered much of the recent regulatory uncertainty—how your company reacts under these circumstances, though, can set you apart. For a deeper dive into how to navigate these movements in the U.S. renewable energy market, we invite you to watch the recording of our webinar, Achieving Sustainability Goals in Times of Uncertainty.