Image: U.S. Department of Energy, Office of Energy Efficiency & Renewable Energy
Last month, we outlined the clean energy technology trends for 2022, and here we discuss the challenges in project finance and the questions lenders will ask in response. Expected challenges in project finance include:
Inflation measured by the U.S. Department of Labor's consumer price index (CPI) ended 2021 at 7.0 percent over the previous 12 months. The CPI will fall, but there is disagreement about how much and when. The recent surge in prices has been due to production bottlenecks and supply-chain constraints. These factors are translating to higher clean energy project costs and making lenders require equipment contracts or shorter project timelines to ensure loans are repaid.
Adding large numbers of new renewable energy capacity has meant more high-voltage transmission lines to connect projects to population load centers. Developers in PJM are especially frustrated and asking for purchase power agreement termination rights if a project does not receive its interconnection or permit approvals. Developers in other markets are reporting that they are paying for most grid upgrades, even though these upgrades benefit all ratepayers.
Finally, current tax phase outs have enormous implications for clean energy project finance. Solar projects that began in 2020, 2021, or 2022 will qualify for a 26 percent investment tax credit; projects that begin in 2023 will qualify for a 23 percent tax credit.
The combination of all these factors - inflation, supply-chain constraints, transmission upgrades, and tax credits - means more project risk for developers and lenders alike. Corporate demand for renewable energy is strong, but the supply of good projects is also limited.
Project Finance Questions
Dealing with these project constraints, lenders consider the following:
Leyline Renewable Capital considers all of these questions in its lending portfolio to invest in promising renewable energy projects nationwide. We deploy creative financing solutions at crucial early stages in the process of bringing large-scale projects online - everything from community-scale solar arrays to anaerobic digesters to energy storage facilities.
Contact us today for more information on how we can help you get your renewable energy project off the ground.