While demand for solar energy is higher than it has ever been, there is certainly no shortage of unique challenges facing our industry today. To successfully develop and execute a project, all participants need to work closely together to manage the risks associated with developing, financing and building a project. The right engineering, procurement and construction (EPC) partner will help you anticipate and overcome the challenges of our industry, often referred to as the “solar coaster,” which has been especially turbulent over the past year. Some of the recent hardships our market has faced include increased costs of equipment and materials, supply chain constraints, limited solar panel availability, and the unpredictability of tariffs and federal policies.
High Demand in the Solar Space
In 2021, renewable energy projects made up 90% of the new energy capacity brought online in the United States, with solar representing over half this value. The growth of renewables is largely driven by investor demand and large corporations mandating their energy consumption to come from renewable sources.
The renewable tax equity market has doubled over the last four years, with 2021 investments totalling nearly $20 billion. The number of unique equity investors, tax investors, and lenders has continued to grow over the course of the last decade. Solar is now viewed as a mainstream investment with very little technology risk. As a result, the pool of investors now includes utilities, pension funds, international infrastructure funds, bond investors, and more.
In addition, many investors have targets to invest in sources that meet certain environmental, social and governance (ESG) goals. In recent years, ESG investments have out-performed their peers, meaning investors have the ability to “do the right thing” while realizing above average investment returns.
Navigating the Current Climate
As mentioned, our industry has been dealing with an unusually high number of challenges over the last 12-15 months. Partnering early with the right EPC firm to help manage these challenges and mitigate risk will help development progress through financial close, and ultimately reach commercial operation with as little disruption as possible.
In the U.S. alone, we are projected to add an additional 300 GW of new solar generation by 2030. This represents over a three-times growth from what we’ve seen in the past decade. This growth is going to put significant strain on all aspects of the supply chain, placing an even higher emphasis on securing the right suppliers and EPC partners to ensure successful delivery of your projects.
While the renewable energy industry will never be void of risk, building a quality team early to optimize project development, lock in commodity pricing, contract with key equipment suppliers, and secure quality execution teams has never been more critical to a project's success.
Predicting the Future of Tax Credits
Federal tax credits have played a key role in driving the growth of the U.S. solar industry. At present, commercial and utility scale projects that start construction in 2022 qualify for a 26% investment tax credit (ITC), projects that start in 2023 qualify at a 22% level ITC, and it is scheduled to drop to 10% for projects that start in 2024 and beyond. Projects have four years to be placed in service to secure their ITC value.
The White House and Congress have discussed an extension to these tax credits by as much as potentially 10 years at the 30% ITC level. While a significant tax credit extension would most definitely fuel additional growth in our industry, solar energy has evolved to the point where it will be able to thrive with or without the ITC. The combination of improved technology efficiency, the cost of solar, and demand for power has put our market in a position to succeed with or without federal tax incentives.
It is clear that the interest in investing in renewables has never been higher. We are seeing risk-averse capital and new investors, who would have not considered solar even five years ago, enter our space in full force. When it comes to navigating today’s challenges, partnering with the right firms and maintaining continuous communication have never been more critical to successfully managing risk and delivering your projects.