Clean energy companies are on the hunt for new ways to finance their projects, given the likelihood that federal tax subsidies for wind and solar will be eliminated going into an election year.
The production tax credit for wind was allowed to expire last year, and the solar investment credit is set to expire in 2016. So the rush is on to try to reinstate the dying subsidies or find something that can replace them.
It’s not just wind and solar companies exploring new options for financing. Companies invested in clean coal technology, using carbon capture sequestration to turn coal plants into low-emission resources, also are looking for new financing.
Sasha Mackler, vice president for Summit Power, briefed members of the U.S. Energy Association last month on measures he is eyeing to make clean coal viable.
Many of the tools would require action by Congress to be implemented, including two proposals in President Obama’s fiscal 2016 budget request. The budget includes a tax credit for carbon capture projects. Mackler says the credit requires some work to make it optimal for coal projects, but the principle is good.
The proposed tax credit would provide $10 per ton of carbon for projects that use the carbon as a revenue stream — for example, if a coal plant sells the carbon to drillers to enhance oil production. The practice of injecting carbon into wells has become almost common in states such as Texas in the practice of enhanced oil recovery.
But the numbers of the tax credit have to be crunched by the Congressional Budget Office, which will make for a “hard path on the Hill,” Mackler said. The tax credit for wind gets $24 per megawatt hour, and carbon capture projects would get $10 per ton. “You can see how it compares.”
Weariness over tax credits is driving Summit Power and others to look to other finance tools. Mackler says he is floating an idea in Congress to include carbon capture projects in “Private Activity Bonds,” the latest idea for a new funding option for clean energy. He called it a good option for clean coal projects to get around the need for tax subsidies, and is a well-understood finance tool issued by local and state governments on behalf of a private company for projects that benefit the public.
Typically, the bonds are used for transportation projects and give companies a way to develop projects while being exempt from federal taxation.
Additional financing tools created for the oil and gas industry, called “master limited partnerships” also are being eyed by the clean energy sector.
The partnerships would allow companies to pool their capital resources, while lowering their overall corporate taxes.
In the past, companies used these limited partnerships to create oil refineries. Now, renewable companies want Congress to tweak them to include wind farms. Renewable firms have lobbied hard in recent years to get the changes needed to make the partnerships available, with lawmakers introducing legislation that would do just that.
The industry is also looking to convert real estate investment trusts, or REITs, to support wind farms and solar arrays. REITs act similarly to master limited partnerships, allowing a group of investors to come together to develop a project with limited tax exposure.
But the likelihood of any of these measures passing Congress is remote.
Even so, clean energy advocates are not short on ideas. The next big thing to come up recently is the “yieldco.”
Yieldcos can be used without the need for legislation. They are used to reinvest the money earned through the sale of electricity from a company’s existing renewable energy projects, to finance other projects at much lower interest rates than conventional loans.
Marley Urdanick with Yale’s Clean Energy Finance Forum said in a report that yieldcos have become “in vogue lately” because renewable companies see utilities and other large power producers use them to great success in 2014.
Urdanick researched finance trends for the Energy Department’s National Renewable Energy Laboratory last year. She found “[t]he case for yieldcos can be compelling, especially as an alternative to master limited partnerships (MLPs) and real estate investment trusts (REITs).”
Analysts predict yieldco investments in renewables to surge in 2015. Yet some say it is a tool for giant companies and not smaller firms.
Other industry segments that produce smart grid and energy efficiency technologies say a carbon tax also would be beneficial. Michael Nark, president of BuildingIQ, a technology firm that helps buildings integrate renewable energy and efficiency, says any policy that benefits renewables would indirectly benefit those technologies.
