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After Trump signed his "big, beautiful tax cut” into law, traditional equity investors found themselves in a moment of reset. U.S. companies and multinationals have spent the first month of the year running the numbers and assessing their options.
Although certainty in the market has waned, interest in direct project investment has not, according to two firms that work with investors.
“Our efforts came to somewhat of a grinding halt through most of November and December, while everything was up in the air and before the dust settled,” said Jeremy Mohr, senior project director of sustainability and energy at WSP, a firm that works with Fortune 500 and Fortune 100 clients. “As soon as tax reform got solidified...it was back to full steam ahead on investments.”
Much of the conversation in clean energy circles about the tax bill’s passage has revolved around a potential shrinking of the tax equity market -- which accounts for between 40 percent and 60 percent of finance for individual solar and wind projects -- because of the reduction in value of renewables credits.
A month into the new tax scheme, industry watchers are still quantifying how much the new law will impact clean energy investments. There is agreement that the market will see at least some contraction.
Jeff Waller, principal in the Rocky Mountain Institute’s sustainable finance practice, said regulatory uncertainty stemming from the complex and convoluted process of crafting the tax bill may well have “spooked” newer entrants to the market. But previous to the law’s passage, RMI had noted a bump in the number of companies investigating new investment roles.
“We haven’t seen a major upswing, at least in terms of actual deals closed,” said Waller. “But we’ve seen a lot of heavy interest -- at least before the tax law passed.”
According to Steve Vavrik, chief commercial officer at Apex Clean Energy, that “heavy interest” has spilled into 2018.
“We’re seeing a doubling of the number of inquiries about investing in projects than we saw last year,” Vavrik said. “We haven’t seen a lot of deals announced under this trend yet, but we’re certainly sharing it as a request.”
The reasons for increased interest are varied.
Mohr said corporate science-based targets “have really gripped the market and gripped a lot of our clients” in the last couple years. WSP is now working with about half a dozen corporate buyers on large-scale renewable energy investment, with several ramping up exploration this year. Mohr attributes much of that interest to growing business understanding of climate risk, carbon goals and the lack of federal leadership on the Paris climate agreement.
“I think it would be impossible to uncouple those things,” he said.
Apex Clean Energy said cost will continue to be central to corporate decision-making on renewables investment. As the economics of clean energy have shifted favorably, so has the mindset around analyzing benefits.
“Corporates are realizing that not all power supply is equal,” said Vavrik. “They’re looking to invest in sustainability.”
That openness complements a greater shift in a maturing market.
“We’re seeing the market overall broaden in terms of the products [companies] are looking for and the approach they’re bringing to the table,” said Erik Haug, a business development senior associate at Apex Clean Energy who negotiates clean energy power-purchase agreements.
While tax equity players have offered cautious encouragement over the sustained health of the market post-tax reform, many still expect financing to tighten. Mohr said the new conditions could squeeze out smaller players, while bigger investors likely won't invest more than previous years. He said that a growing number of nontraditional investors are looking into direct investment, with help from tools like the RMI Business Renewables Center, which will streamline the process and encourage more involvement.
For Waller, it’s still too early to fully assess the impacts of tax reform. He said market diversification is encouraging.
Companies "are starting to investigate different pathways, which I think is healthy to let corporates meet their renewable energy goals,” said Waller, adding, “The larger financing implications of this are yet to be seen.”