Innovative Ways to Prioritize Your Renewable Energy Strategy

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Charles Benisch Director, Renewables Advisory
Brian Dooley Director, Renewables Advisory - Americas
Renewable Energy
Clean Energy

In a recent webinar, ENGIE Impact experts joined representatives from Seminole Financial Services, Nexamp, and Energetic Insurance to discuss innovative ways to prioritize your renewable energy strategy while also reducing costs. Below we share highlights from the discussion.

Starting in the early 2000s, there were about five or six extreme weather events—what the National Oceanic and Atmospheric Administration calls billion-dollar weather events—each year in the United States. We’re now averaging more than 20 hurricanes, tornadoes, floods, droughts, or forest fires that cause over a billion dollars in damages each year.

Extreme Weather Events Over Time

Extreme Weather Events Over Time

In addition to the increased frequency, these storms are also getting more intense and causing more damage. Extrapolated forward to 2050, the cost of these weather events in the United States alone will exceed the GDP of nearly every country on the planet. We cannot afford to continue with the status quo.

Corporate Involvement in Community Solar

At its core, community solar enables greater participation in the renewable energy transition by offering communities a way to support local solar projects and also realize a reduction in their energy costs. The typical structure of community solar is based on a fixed discount model. For every kilowatt hour of electricity that's generated, a subscriber realizes credits on their bills, which offset their utility costs. Since each credit is sold at a fixed discount, the savings are locked in.

Residential customers and corporate subscribers can both support community solar. Corporate involvement has seen significant growth recently due primarily to three factors:

  1. Guaranteed savings model and the ability to aggregate product size.
  2. Desire from the corporate anchors to support renewable generation in the communities they serve.
  3. Using cost savings to mitigate other rising energy costs or offset other renewable energy investments.

Tax Equity Investing Reduces Renewable Energy Costs

Solar development qualifies for an investment tax credit. The tax credit is currently 26% of a solar project’s total eligible costs, and the Inflation Reduction Act of 2022 will increase the tax credit to 30% and extend it for ten years.

Developers unable to fully utilize the tax credit themselves often sell off the tax credit to corporate investors. Corporates with sizable renewable energy or carbon reduction targets are now utilizing these investments to offset the cost of REC purchases for five key reasons:

  1. Free RECs: Tax equity investments utilize capital that would otherwise go to the IRS.
  2. Safe Investment: Tax equity investments typically return capital in less than 2 years with a guaranteed ROI.
  3. More Stability, Less Risk: Terms are about five years, providing more stability than an REC purchase, but less risk than a PPA.
  4. High Yields: With typical ROIs ranging 8-12%, yields are often higher than risk-adjusted internal hurdle rates.
  5. Additionality: Tax equity investments directly support the financing and construction of new renewable energy assets.

The Advantages of Credit Insurance

Renewable energy buyers are often willing to accept longer term lengths (10-20 years) to reduce the cost of renewable energy investments and/or to support “additional” renewable energy that displaces existing fossil-based power generation.

These long-term agreements are common for power purchase agreements (PPAs), virtual power purchase agreements (VPPAs), on-site solar projects, several community solar programs, and even some energy efficiency contracts.

To secure the financing needed to develop projects under these agreements, developers need to establish the creditworthiness of the buyer. To establish creditworthiness, companies with credit ratings that are below investment-grade and entities that are unrated often need to provide credit support in the form of a letter of credit or bank guarantee. Companies with investment-grade parents that are looking to sign a contract with an unrated subsidiary will face similar challenges.

Tying up capital and facing higher carrying costs for credit may prove difficult for many would-be buyers. Credit insurance, however, can significantly reduce the support needed to establish creditworthiness and drive down the buyer’s overall costs.

Explore more creative solutions to reduce renewable energy costs. View full webinar→

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