A mantra for solar developers in 2023: Balance, agility, value

We seem to be in a golden age of renewables, accelerating the energy transition. Consumers are expecting businesses to commit to and meet environmental goals. And demand for clean energy solutions is skyrocketing.

According to the Solar energy Industry Association (SeIA), the U.S. installed more than 20 GWdc of solar PV capacity in 2022, enough to power 25 million American homes.

Last year marked the fourth consecutive year that solar led new electric capacity installations.

So why do so many of us in the renewable development industry feel like the path forward is complicated and lacking in stability? As is the case in many areas of our lives, the Covid-19 pandemic had a role to play. We continue to see the ripple effects of supply chain delays and rising prices as our global economies deal with economic fallout, complications, and changes.

According to SeIA, direct current solar capacity installations decreased 17% year over year. This may be due in part to increasing hesitation on behalf of potential investors and corporate partners who are watching their own budgets or have less money to deploy in anticipation of macroeconomic uncertainty. It may also be a result of the Solar Production Tax Credit (PTC) being newly available to solar developers, as stakeholders await further guidance and conditions to mature.

Yet at the same time, the industry is bursting with opportunity. The passage of the Inflation Reduction Act (IRA) in 2022 helped turbocharge an already attractive renewables sector. With the addition of the PTC adding value for projects and the extension of the Storage Investment Tax Credit (ITC) accelerating the energy storage market through 2032, the industry is poised to make gains to advance a cleaner, reliable grid.

Amid this roller coaster of headwinds and opportunities, the renewable energy development community needs to determine how to proceed. In my role leading Vesper energy, a developer, owner, and operator of utility-scale renewable energy assets, some of the common questions I hear from my peers include:

How do I stabilise project financing and capital stack amid macroeconomic uncertainty?

How can I take advantage of the rising demand and momentum in renewables in a responsible way?

How do I demonstrate the value of solar and storage projects in the face of community opposition and uncertainty from partners?

Vesper has navigated industry challenges while developing more than 50 solar and storage projects across the U.S. We have found the following strategies to be particularly effective in helping us stay agile and on track to meet our goals:

Vesper uses dynamic project-level financing to find the right capital solution for each project, while considering relevant tax incentives. This involves collaboration with our banking partners to optimize the capital stack, which helps drive down a project’s cost of capital through the use of construction loans, term loans, and tax equity financing. We believe there is no “one size fits all” solution to financing projects. For example, depending on a variety of factors, including installed costs and solar intensity, we may elect to use the PTC made available to solar projects under the IRA rather than the traditional ITC. Lowering our cost of capital helps us offer customers cost-competitive renewable energy to meet their clean energy goals.

Our banking partnerships aren’t confined to projects in the construction phase. We also work with these partners while a project is in development and requires financial security for power purchasers and interconnection providers. This financial security is typically satisfied through letters of credit from investment-grade rated banks. As renewable energy development pipelines have continued to grow, so has the need for letters of credit. At Vesper, we recently upsized our letter of credit facility from $140 million to $200 million, providing financial security to advance the development of our critical solar projects. Additionally, where appropriate, we utilize low-cost surety bonds to support our supply agreements.

The IRA, while relatively new, continues to evolve. Which means renewable energy developers must continually assess the impact of these changes on their business and existing and planned projects.

Take the IRS’ new guidelines around energy community definitions to include brownfield sites, former coal communities, and communities with unemployment numbers above the national average. These new guidelines created benefits for hosting a solar project to have extended reach and impact in critical communities.

Vesper is developing a significant percentage of our projects in communities that qualify as energy communities, which means we need to be agile in watching the benefits associated with these projects and communicating those benefits back to our customers. These added incentives will likely accelerate project development in certain markets that previously did not make economic sense to pursue.

Another example is the new IRA provisions on transferability, which create opportunities for negotiations for forward tax credit purchases. This provision will bring many new tax equity investors into the renewable energy market due to less complicated deal structuring relative to traditional tax equity investment structures. These changes mean solar developers should continue to evaluate transfer structures as it optimizes project capital structure.

Whether you are working with established partners or a new project financer, it is critical to identify ways to continually demonstrate your organization’s value and illustrate how you are bringing your mission and values to life. Our team articulates our value to project partners through:

Developing strong relationships with Independent System Operators (ISOs) and utilities to close Interconnection Agreements as quickly as possible and secure supplies up front, helping de-risk pipeline projects

establishing strong relationships with top-tier suppliers and framework agreements with PV and BeSS suppliers to ensure product is available when we it’s time to install Building trust with a demonstrated track record of successfully permitting complicated sites, including: Landfills and retired nuclear facilities as well as navigating the federal, state, and local permitting nexus. —