Investment tax credits for renewable energy projects have played a significant role in the industry’s growth over the past decade while helping lower the price for the end consumer. But with the deadlines to take advantage of the tax credits for solar and other renewables fast approaching, the economic assumptions behind most projects soon may change, raising questions as to whether the Pentagon’s appetite for renewables can be sustained.
Next month, ADC and the National Council for Public-Private Partnerships (NCPPP) are co-hosting a one-day event in Washington that will take a close look at how the possible expiration of the energy tax credits will affect the future of third-party financing for renewable projects on military installations. The Fifth Annual Federal Energy Workshop and Defense Energy Partnership Forum, which will be held Sept. 16 in downtown Washington, will explore a number of other topics as well, including the joint use of power purchase agreements and energy savings performance contracts, the outlook for public-public and public-private partnerships, and the growth in co-generation projects.
At this point, it’s still too early to gauge the magnitude of the impact of expiring tax credits on the federal market for renewable projects, said Anita Molino, co-founder and managing partner of Bostonia Partners. If the expiration of the 30 percent tax credit at the end of 2016 for solar installations raises development costs, as could be expected, the military services could resist engaging in new power purchase agreements as they have said they are not willing to pay a premium for green power. Pricing will be an issue for other federal agencies as well in such a scenario, said Molino, who also is the chairman of NCPPP.
The expiration of the production tax credit for wind energy and biomass projects at the end of this year likely would have a similar impact as well on pricing.
The solar industry is urging Congress to extend its tax credit — or allow projects that are under construction but not yet operational to qualify — but in the absence of an extension, many experts believe the consequences may be less significant. They point out that developers would still be eligible for a 10 percent tax credit and, more importantly, development costs for solar installations are likely to drop by the time the tax credit expires.
Another factor that could mitigate the loss of the tax credit would be a reduced need for developers to attract tax equity investors to finance their projects. The complexity inherent in tax equity financing can drive up development costs, so not having to rely on it should serve to trim project costs, Molino said.
Attendees will have the opportunity to hear Molino speak in more detail on this topic during one of the afternoon breakout sessions. To register for the event, please visit the ADC website.