As part of the 2009 US Recovery and Reinvestment Tax Act, the U.S. Treasury created Program 1603 to allow grants to revenue-generating renewable energy programs, rather than investment tax credits. As a result, almost 110,000 renewable energy initiatives were dipped into $26 billion.
While the current economic situation could become even uglier than what the country experienced in 2008, some suggest a similar system could be used as a tool for dramatically high rates of solar growth as society returns to post-Covid-19 normality.
Among their numbers is Jim Spano, co-founder of the RadiantREIT real estate investment trust firm Solar Financing.
“I think the lesson learned from the first downturn,” said Spano, referring to 2008, “is that when the public policy takes a concerted interest in climate change, it must find ways to ensure that renewable technologies continue to be created and installed.”
The US solar tax equity funding model – involving borrowers and companies with high tax bills funding projects in exchange for the tax incentives given to them – is likely to evaporate in the current crisis and Spano hopes it will be replaced by an alternative financing model.
“I think we’ll see a lot more debt come into the market, which reduces the need for equity and makes commercially viable ventures,” he said. “Many borrowers will see substantial growth and many market equity investors will move to debt positions because they understand that on the debit side the risk-deviated returns will be higher.”
The forecast came on the same day that members of the European industry expressed concerns that the whole opposite scenario would occur at their doorstep, with lenders predicted to be increasingly reluctant to take a chance on solar given the ongoing lockout of coronavirus.
Because of the financial mechanisms used to make manageable the capital costs of building projects, Spano argues that the U.S. solar industry is in a unique position to recover quicker, with less long-lasting consequences, than other industries.
“Americans are eager to get back to work,” the solar investor said. “You’re going to see a fast turnaround, tons of capital looking to be deployed, and the pent-up demand for capital in the renewable industry is what will push the rapid recovery into a robust market.”
If help comes from the federal government – doubtful as this possibility may be under the White House’s current occupant – Spano predicts that new solar technology will arise nationally as states will try to minimize unemployment by creating green jobs initiatives. However, if the funding falls at the state level, the creation of renewables will be biased towards the states that have already set high expectations for renewable energy, because they will try to meet the targets and requirements they set.
“Not all states have embraced a sustainable target of 100 per cent,” Spano said. “Common sense suggests that if a state passes a law calling for 100% renewables and economics will not help [development], even with the investment tax credit, the states would have to step in with some sort of incentive to meet their targets … You can not afford to have a law demanding 100% renewables if no renewables are installed.
“I think Covid-19 is going to be a major boost for the renewable industry and I believe we are going to be the sector that generates the jobs and fulfils the priorities of public policy.”