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Tax equity financing for renewables remains robust, but deal delays likely, Morgan Stanley, others agree – Utility Dive

Tax equity financing for renewables remains robust, but deal delays likely, Morgan Stanley, others agree  Utility Dive

Dive Brief:

  • Despite the economic recession, tax equity deals to finance wind and solar projects are happening at about the same volume this year as they did last year, a sign of the force behind a rush to qualify for tax credits, executives of the tax equity divisions at several major financial firms including Credit Suisse, Morgan Stanley and U.S. Bank said in a roundtable discussion on Friday.
  • “We have not had anyone say that they are out,” although there has been “some delay in getting commitments” from tax equity investors, Darren Van’t Hof, managing director of environmental and community capital at U.S. Bank, said during the May 22 webinar held by law firm Norton Rose Fulbright.
  • At the same time, concerns about liquidity in March and April caused some investors to act cautiously, so many deals that would have closed in 2020 may not close until 2021, the executives said.

Dive Insight:

Renewables projects that began construction in 2016 had been racing to finish this year in order to receive “safe harbor” status that qualifies them for expiring tax credits. Recently, however, the federal government indicated that the safe harbor deadline for wind projects will likely be extended from four years to five, giving these projects some more breathing room.

The extension could make a difference for some projects that have experienced or may experience delays related to COVID-19.

Capital One has seen “a couple deals where some of the suppliers had issues” that are causing those projects to be pushed into 2021, said George Revock, head of alternative energy and project finance at the bank holding company. “We’ve also had contractors provide notices that force majeures could happen,” although none of those “force majeure” events have actually taken place, according to Revock.

This threat of supply chain problems and project delays sent shocks that also affected the investor side of tax equity for renewable projects. But those jitters are not appearing to materially slow demand for renewable project financing, according to the speakers in the webinar.

“We’ve had rumblings of a couple of investors tapping the brakes slightly,” Peter Cross, managing director at Credit Suisse, said. But, overall this year, “we’ve certainly seen an uptick in demand in our business,” he said.

The longest-lasting impact of the pandemic may be not that there are fewer tax equity deals to finance renewable projects, but that the deals in the pipeline close somewhat later than they otherwise would have. Any new business struck from this point on in 2020 will likely not close until next year, Van’t Hof, Cross and Jorge Iragorri, head of Morgan Stanley’s alternative financing group, all agreed during the discussion.

The “volume will be the same” as 2019 but will translate to more deals actually closing in 2021, according to Van’t Hof.

Source: utilitydive.com

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