Invenergy’s CFO Speaks About Renewable Energy Finance

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Based in Chicago, Invenergy is one of the largest wind farm developers and owners in the United States. (It also develops natural gas, solar and energy storage facilities.) CFO James Murphy answered some questions for CleanTechnica.

1. Phasing out tax credits for renewable energy seems very counterproductive. Is it mainly politics which is driving the decision-making instead of rationality? jim-murphy

The tax credits were always intended to be available for a limited time period in order to get the industry scaled up and competitive on an unsubsidized basis. With low demand growth and low gas prices, this has taken longer than expected for renewable energy. But the huge improvements in cost and efficiency that we have seen over the last 10 years make the phase out now conceivable. It will be important to be sure that all technologies, including fossil fuels, eliminate subsidies as well to ensure a level playing field.

2. If politics were not part of the picture, do you think renewable energy tax credits would continue for years to come, until renewable energy could establish itself much more significantly, such as at least 10% of all electricity production in the US?

Politics aside, renewable energy has moved mainstream and will capture a larger and larger share of the generation mix over the next 10 years. Whether via the Clean Power Plan in the US, or some other scheme that recognizes the true cost of carbon and other externalities, renewables will be the technology of choice for power generation.

3. Who is funding most of the new large-scale renewable projects in the US, and what are some of the barriers for legitimate projects to getting the funding they need?

Funding is coming from commercial banks, institutional investors, infrastructure funds, utilities, and independent power producers. Tax credits and benefits such as accelerated depreciation are a significant component of project economics, and many asset owners are not able to efficiently utilize those credits and benefits. Therefore, they seek “tax equity” investors that can use the benefits to shelter other income. There are a limited number of such investors and the cost of their capital is quite high. Tax equity investors are selective and some smaller players have difficulty securing this capital.

4. Do you see the emergence of the energy storage field as something that makes it easier to build more solar and wind power projects because now there is a solution to the intermittency problem?

Storage is not a solution yet because the cost is still too high. Storage is currently more suitable for providing grid stability. 

5. Why were yieldcos created, and how have the performed so far?

For years, the renewable power business sought a public equity instrument for ownership of assets. MLP’s were explored but not feasible due to tax constraints. Yieldcos became an alternative that seemed to work, but had one important challenge. In order to stay attractive for both sponsors and investors, the yieldcos, as conceived in the US market, needed to show significant growth of dividends per share over time. This has not been achievable for many yieldcos and as a result we have seen some retrenchment in that space.

6. Is it inevitable that coal and nuclear will be phased out because of the falling cost of renewables and natural gas?

Phase out of coal seems inevitable. Nuclear phase out will be a function of license extensions (or not). We don’t expect to see any significant new nuclear build as the cost is just too high and unpredictable.

7. Is there a big picture or holistic energy perspective emerging in that EVs and energy storage are coming on the scene, and they obviously fit well with solar and wind power?

Yes, both EVs and storage do fit well. Proliferation of EVs will require substantial investment in the distribution network to support it.

Image Credit: Invenergy

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Jake Richardson

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