Covid Created a U.S. Clean Energy Shortfall of Up to $23 Billion

As much as $23 billion in capital needed for U.S. clean energy projects could dry up amid the economic fallout from the coronavirus pandemic -- threatening the growth of renewables into next year.

That represents as much as 31 gigawatts of solar and wind projects that may be seeking tax-equity investments over the next 18 months, according to a report by BloombergNEF.

Tax equity financing has been instrumental in expanding the deployment of renewables in the U.S. In such deals, investors including banks and insurers passively invest in clean-power projects in exchange for using federal tax credits that offset their own tax liabilities. But now, with the economy under stress, the pool of investment has shrunk even as demand for it remains high.

“Project economics do not work without tax equity,” said Tara Narayanan, a BNEF solar analyst and an author of the report. “Banks willing to fund renewable energy may have to defer it to when they are certain they can commit funds.”

Covid Created a U.S. Clean Energy Shortfall of Up to $23 Billion

The availability of tax-equity financing is declining as U.S. tax revenues plunge due to the pandemic, reducing investors’ appetite for such deals. That means some developers may have to delay financing and thus the completion of their projects until 2021 or beyond.

Raising the stakes for developers is the fact that key tax credits for wind and solar are winding down.

High demand for tax equity financing gives the upper hand to a relatively small group of investors. About 55 institutions have provided tax equity over the last five years, according to BNEF.

©2020 Bloomberg L.P.

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