Dive Brief:
- The financial case for renewable energy projects is still strong, say industry leaders and analysts, even as President Trump introduces uncertainty into the market with new tariffs, policies that prioritize fossil fuel development, and his pledge to work with Congress to claw back funds from the Inflation Reduction Act.
- The IRA’s investment tax credit, or ITC, “should survive pretty much unscathed,” said Brad Molotsky, a partner at law firm Duane Morris. In addition, data center growth along with surging building and vehicle electrification will keep electricity demand high, said Paul DeCotis, a senior partner and head of East Coast energy and utilities at West Monroe.
- “In light of that [demand], politicians on both sides of the aisle agree that we need more power infrastructure, and 95% of the interconnection queue currently is clean energy,” said Crux CEO Alfred Johnson. “That is the fastest to deploy, and in many cases, the most affordable choice for new power.”
Dive Insight:
Earlier this month, Crux — a finance technology company that connects tax credit buyers and sellers — launched a debt capital marketplace for clean energy developers and manufacturers to more easily access financing.
Johnson said he hasn’t yet seen investors or lenders pulling back from the clean energy sector in response to recent uncertainty. “The levelized cost of energy from clean sources is as competitive, or more competitive than others,” he said. “And so companies are making corporate business decisions to solve the needs of more energy demand and the need for domestic components — they’re making those decisions irrespective of any views that they may have, politically or otherwise.”
Those decisions require capital, Johnson said, and “we’re seeing more of it flow than we’ve ever seen before.” Lenders in Crux’s network have already issued more than a billion dollars worth of term sheets, he said.
A February report from consulting firm Grant Thornton said an anticipated “swoon in the oil and gas industry …. hasn’t materialized and doesn’t look likely in the near future,” and reported that merger and acquisition interest in the renewables sector had been “lukewarm” even before the November election, but offered a strong overall outlook.
“As most regulations are finalized under the IRA, and the technology-specific credits have transitioned to being technology neutral, we do not believe the new administration will ultimately take action to repeal the full suite of credit benefits,” the report said. “However, there could be impacts to individual credits.”
If the IRA stays largely intact, its credits will “make renewables an attractive option for M&A even though demand hasn’t accelerated as rapidly as expected,” said Grant Thornton’s report. “This subsector’s momentum and profitability have fallen somewhat short of predictions in recent years, but energy production from renewable sources is widely expected to rise in the coming years, with dramatic increases projected over the long term.”
Even without the backstop of the IRA, “many projects stand alone and have a good return on investment irrespective of whether one uses the investment tax credit program or not,” said Molotsky.
“While it is likely that [the ITC] will be reduced or eliminated for offshore wind, [electric vehicle] chargers and EVs themselves,” he said, “the other programs that use ITC would more fall within an all of the above energy strategy and should continue to be safe to rely on and utilize on a go forward basis.”
Molotsky noted that states like Texas have already deployed enough clean energy to create significant momentum in the sector. He pointed to the Electric Reliability Council of Texas’ record-setting wind, solar, and battery storage deployment this month, and the fact that on March 2, “wind, solar, storage, and nuclear met over 75% of ERCOT demand.”
But some new financing will be “on hold until the market gets a clearer picture of what parts of the [IRA] Congress will roll back,” said Keith Martin, partner and co-head of projects at Norton Rose Fulbright.
“The market is financing projects that were already under construction going into this year,” Martin said. “A ‘safer bet’ project is a project that was under construction in 2024. Such projects are entitled to claim tax credits under the 2024 tax code, provided they’re completed within four years.”
DeCotis said he’s “less pessimistic than most people” about the fate of the IRA’s tax credits thanks to the U.S.’s recent increase in demand for energy, particularly electricity.
“Regardless of the change in policy, the need for infrastructure investment remains, much of which is provided for via the IRA,” he said. “So I would expect there to be some tweaking around the edges, and where Congress could claw back some money, they might — but I don’t anticipate it to have a significant impact on the investment dollars that will float energy infrastructure. Because if it does, then we risk energy shortfalls, we risk blackouts.”
Correction: This article has been updated to correct the name of the law firm where Brad Molotsky is a partner.
