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How to Navigate the Finances of Renewable Energy Development

August 4, 2022 Patrick Corr

In a previous blog post from November 2021, I discussed important partnering considerations to take into account when planning a new solar investment. In this post, I’ll cover the financial issues that can impact a project’s success or failure.

The U.S. solar market has a seemingly endless number of incentive structures to navigate at both the state and federal level. This can make assessing the best way to ensure a project meets your company’s sustainability and financial targets a difficult task. Rather than attempting to solve the entire question at once, we suggest addressing it by breaking it into digestible chunks:

  1. What are your organization’s goals, both in general and specifically related to the project at hand?
  2. How well is your company positioned to execute a plan?
  3. What do you know about the timing and availability of incentives?

Now, let’s look at what each of these pieces means in practice.

Aligning with goals

Take some time to consider what’s most important to your company and whether the various branches of the organization are all on the same page when it comes to these goals. There will likely be many stakeholders involved in the effort to move a project through to completion, and clear alignment between all of them increases the odds of success. (Timing might also be part of this process, but I’ll discuss that in a bit.) Here are aspects to cover in these conversations:

  • Sustainability goals. Does your company have established sustainability goals? Such targets are becoming a bigger driver for corporations and might inform how ambitious your plans are and what your timing might be to complete them. Sustainability goals likely will evolve over time, but having a shared common vision is a good start.
  • Electricity costs. The Energy Information Administration has projected significant increases in U.S. wholesale electricity markets this summer. This continuing trend presents a compelling argument for investing in clean energy to hedge against future price hikes.
  • Investor expectations. Is your company publicly traded? If so, the Securities and Exchange Commission’s proposed rule on emissions disclosure could have a strong influence on your approach to renewable investments. As I’ve gone into in some detail previously, this information could have a tremendous impact on when and how your organization chooses to proceed with a renewable energy project, among other considerations.
  • Climate change concerns. How concerned is your company regarding the impact of climate change – the Intergovernmental Panel on Climate Change’s most recent report is certainly dire enough to inspire immediate action. There is an increasing awareness regarding the impacts of climate change, and how an organization positions itself can affect its attractiveness to investors and potential employees.

Determining your current financial position

Financial conditions are a key consideration when evaluating a project’s prospects, including:

  • Capital availability. Do you have access to a capital budget? Renewable energy is a great investment to consider, with the ability to budget electricity costs for years to come. But is renewable energy the best option? Your company might also choose to invest that capital elsewhere to grow or meet other business needs.
  • Tax situation. Does your organization have a tax appetite – that is, are your tax obligations currently significant enough to take full advantage of available incentives? This is critical for companies looking to benefit from the federal investment tax credit (ITC), a declining government incentive I’ll explain below.
  • Power Purchase Agreements (PPAs). PPAs can be a good option in states that allow third-party ownership (TPO). This structure can allow your organization to hedge against rising energy costs while reserving capital for other investments. The strategy is also helpful if you lack the tax appetite needed to fully realize ITC benefits a solar and storage project can offer.

Identifying incentives

Incentives can be very complicated, though they can be a bit simpler if you’re located in a single state or utility territory. In New York, for example, there are opportunities to take advantage of a tremendous increase in available state incentives (this webinar helps explain them.) But if you’re handling a national portfolio, you can quickly face a staggering undertaking, with potentially significant impacts in hard costs and missed opportunities.

To start, it’s important to understand HOW incentives are structured, as they will generally fall into one or more of the following structures:

  • Solar renewable energy credits (SRECs). These are credits granted to solar systems for every 1 megawatt-hour of electricity they produce. They are tracked, regulated, and traded in SREC markets. Their value varies by market and is tied to the renewable portfolio standard for each market. There are several strategies for monetizing SRECs, and having guidance here can optimize their potential value.
  • Net energy metering (NEM). NEM is a utility billing approach for onsite solar installations that provides financial benefits for selling the electricity your panels produce in excess of your needs back to your utility. Depending on your state, you might be compensated at the prevailing wholesale power price or the full retail price.
  • State and local incentives. Individual state incentives can vary widely and can include tax credits and other benefits. This database provides a comprehensive national listing of state-level renewable energy incentives.
  • Investment tax credits. This federal incentive program provides tax credit equal to a percentage of the costs of a qualifying renewable energy installation. The details could be shifting soon, based on the possible passage of the Inflation Reduction Act now being negotiated in Congress.

Our team is eminently qualified to navigate all of these issues for you. We serve some of the world’s largest corporations and have earned the trust of our clients for many years. Visit Empower Energies to learn more about C&I solar and storage development. There you’ll find the opportunity for a no-cost assessment that can make it easy to start or expand your company’s renewable energy program.