All eyes are on the reduction or expiration of the 30 percent federal investment tax credit (ITC). While it's the prime goal of SEIA (Solar Energy Industries Association) to maintain the federal ITC, some have argued explicitly that it's time to dismiss solar tax credits on the local level, while others have argued the federal tax credit SHOULD be reduced or eliminated to help the solar industry.
In this 30-minute interview posted below, I talk with Chris Lord, of CapIron Inc, a solar finance expert. Chris works with property owners, developers and financiers to develop mid-market solar projects. Chris has extensive experience financing solar projects and because he deals with stakeholders on all sides of a project, I've found his perspective to be extremely valuable. We'll discuss investor trends in the commercial solar market, the possible impact of the expiration of the ITC, non-recourse bank lending trends, how EPCs should find investors in their local market, and the impact of crowdfunding.
My takeaway: The impact of the possible ITC expiration will depend on the local market. In markets that have flexible programs, namely SREC markets, it could actually increase the adoption of solar PV by increasing the value of SRECs — after a short drop in supply — which would then open up an entire markets for both properties and investors that could not use the ITC before. While in markets with more rigid structures, like feed-in-tariffs, cash rebates, or tax credits, it might have a more long term negative impact.
In this interview, you will learn:
- Why there are a lot of banks and funds investing in 2-MW+ and residential solar projects, but few focusing on commercial. Chris Lord will share why he does not see a trend of more and more project investors focusing on smaller and smaller commercial projects even though there is a huge opportunity. (Note, there are some funds focusing on mid-market projects, click here to listen to an interview with a $20MM solar tax equity investor that only finances mid-market commercial projects.)
- Why mid-market commercial projects are the hardest part of the market for investors to deal with. Hint: It's because of the high transaction cost relative to the size of the deal and the inability to aggregate deals.
- Even though commercial financing is difficult, Chris will share how he sees projects are still being built.
- The four characteristics of the right investors for mid-market commercial projects.
- What are the three steps a developer must take to find project investors for their projects.
- How an EPC's development plan for a project and the tax appetite of an investors are intimately linked.
- How the tax appetite of an investor will be the limiting factor to an EPC's development plan and how you can quickly reverse engineer the tax appetite required from an investor to fund your development pipeline.
- Why the standardization of documents (note: you can see the results of NRELs working group here and Tioga's open source PPA here) will only have a minimal impact on reducing the transaction costs for mid-market deals.
- Why developers should work on creating a specific formula with their investor partners with a specific jurisdiction that can be replicated as much as possible.
- How tax benefits are a double edged sword and how the expiration of the ITC could greatly simply financing and increase adoption of commercial solar.
- The maximum transaction cost-to-project deal ratio that Chris sees in the market.
- The impact that the expiration of the federal ITC could have on local solar markets and how it will be different based on the rigidity of state incentive programs.
- How low gas prices could shut down coal plants and increase electric rates, increasing solar adoption.
- Why non-recourse debt is not getting substantially involved in the commercial solar market.
- Why the expiration of the 2016 ITC could switch the market to using a hosts debt and their own balance sheet to finance projects, eliminating the need for a PPA because tax credit monetization is no longer needed.
- Three advantages of crowd-funding over borrowing from banks for developers.
- Two reasons why crowdfunding is attractive to investors.
Do you have feedback or questions about this interview? Please leave them in the comment section or send me a note on twitter.
Chris Williams is the chief marketing officer at HeatSpring, you can find him on twitter @topherwilliams. HeatSpring offers a Solar MBA for commercial solar finance for developers that need to learn how to finance commercial solar projects. You can test drive 1% of the Solar MBA for free here.
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