Below are soundbites from panelists at Infocast’s Solar Power Finance & Investment Summit from March 19th to 22nd in Carlsbad, CA. It was an extremely well-attended event and the mood of the participants was generally upbeat. Many people observed that there was more capital for projects under development or to buy operating portfolios than there was such supply of projects available to meet that demand.
The soundbites are edited for clarity and are organized by topic, rather than in chronological order. They were prepared without the benefit of a transcript or recording.
Impact of Tax Reform on the Tax Equity Market
Impact of the Corporate Tax Rate Reduction on the Supply of Tax Equity, Yields and the Capital Stack
“This year we can do $9 million in tax credits; before we could do $15 million.” [The implication is that a 21 percent federal corporate tax rate is 40 percent less than a 35 percent corporate tax rate, so the tax appetite has declined by 40 percent.] Vice President, Industrial Bank
“The [supply side of the] tax equity market has declined by 40 percent; some tax equity investors are taking a pause.” Vice President, Regional Bank
“Our bank this year is slightly below the billion dollars of tax equity it originated last year for its own book.” Vice President, Midwestern Bank
Some “mainstream tax equity investors have taken a pause [from investing] to figure out what the 21 percent corporate tax rate means for them. It is an investors’ market, but we nervously see a sponsors’ market ahead.” Managing Director, Financial Advisory Firm
Traditionally, rates for tax equity have been a function of supply and demand, but now we are seeing real pressure on rates.” Managing Director, Money Center Bank
[It is difficult to jibe this banker’s quote regarding pressure on tax equity rates with the quotes above regarding the supply of the tax equity market being smaller due to tax reform. Possibly, tax equity investors are agreeing to share some of the yield detriment of the depreciation being less valuable and that has resulted in reduced after-tax yields.]
“Some utilities that had tax appetite no longer have tax appetite and need to raise tax equity for their projects.” Director, Money Center Bank
“We are trying to get back to the same all-in return where we were before tax reform.” [As the depreciation is less valuable at a 21 percent tax rate than it was at a 35 percent tax rate, this means either (i) contributing less for the same 99 percent allocation of the investment tax credit or (ii) contributing the same amount and requiring a distribution of a larger share of the cash.] Vice President, Midwestern Bank
“Tax reform helped us because it means tax equity contributes less to the project, so it makes our loan product more necessary.” General Manager Renewable Energy Finance, Small Business Bank
“The debt market has come in and is filling the decline in tax equity.” Executive Director, Manufacturing Corporation
“The buyouts of [tax equity investors’ post-flip interests] are more valuable because of the lower tax rate.” Partner, Big 4 Firm
“We see sponsors’ financial returns over a 35-year project life increase due to the tax rate reduction.” ” Managing Director, Structuring Advisory Firm Continue Reading Infocast’s 2018 Solar Power Finance & Investment Summit Soundbites