Equity finance: Renewable Energy Provisions

Congress passed a bill for the extension of incentives for renewable energy. This bill was passed during the period spanning the credit crash and housing debacle. Thus the banks investing in renewable energy installations are having no funds to continue and their interest in the matter is lagging with respect to the falling markets. Thus renewable energy products have been postponed as a result.

There has been lobbying of the congress by a leading renewable energy installer for reforms to the tax credit on investments for installations of renewable energy. This would increase investments and kindle growth of the industry claims the installer. Thus more flexibility is demanded in using the federal tax incentives for the renewable energy investments. Another demand stated in is formulation of new regulations so that thirty percent tax credit can be monetized by the renewable energy developers. These developers have been trying for such a change in policies since there was an expansion of credit as part of the Emergency Economic Stabilization Act of 2008.

The current system of financing for the renewable energy projects gives a thirty percent tax credit to banks and financial institutions and they have the right to write off some depreciation also. The House is in support to the request of monetization but this doesn’t solve the entire problem. Of course, it would help the developers to purchase power agreements so that work can be started in their projects. This also allows the plant owners to carry back depreciations for 5 years. But this is permissible only for people who have not availed Troubled Assets Relief Program Funds.

The trouble in securing finance has forced SolarCity to postpone new installations for 6 to 8 months. SolarCity Corp. is based in Foster City and is the largest installer of residential solar in California. They have many innovative ways of customer service. They have the provision for leasing of panels instead of buying. Solars help in the reduction of power bills and the leasing program allows for financial savings for the customer. San Francisco offers SolarCity incentives in addition to the federal and state tax credits and this helps on the overall success of the plant here. The lease program of the company is dependent on tax equity investors. Large banks and financial firms are the customers intended since they would have tax equity. These are hard to come by in the present economic condition and hence the company is facing a crisis. Former tax equity investors are in loss and therefore have no taxable equity which is available. Thus there are severe tax equity constraints in the current market.

Thus customers who want to use the lease program have to wait till next year for availing it. At present the company installs around hundred installations through lease every month and thirty for cash. The only thing lacking is finance, the man power and materials are available. SolarCity is lobbying very hard for government grants to be made available to the solar companies.

They are waiting and watching for the stimulus package.