As we head into the fourth quarter of 2020, now is a great time for corporate taxpayers to review estimated liability and reassess the utility of using the solar ITC this year. This year in particular, there are several factors that make this “last look” at solar tax equity investing especially practical and timely.
The Blurred Income Picture
Windmill Capital Management talks to corporate taxpayers and CPA firms throughout the year. In a typical year, we may hear from one or two tax equity investors that wait to assess their tax equity appetite as their views on projected taxable income take form. This year, of course, was different.
As the COVID-19 pandemic increasingly impacted the US, beginning in late March, almost every taxpayer we speak with took a pause on their internal projections. The environment was incredibly uncertain and CFOs had no frame of reference to estimate future income, let alone potential extraordinary expenses.
Tax equity investing, therefore, virtually ceased. With business at a standstill, imports and exports on hold, an unsteady and inconsistent government response, and nothing more than a hazy picture of 2020 taxable income, tax equity discussions were meaningless.
Development on Hiatus
Meanwhile, solar developers and projects went on hiatus. Many projects were interrupted by state or local shelter-in-place orders and / or work stoppages. Even after operating restrictions were lifted, supply chain disruptions continued to keep many projects on idle.
Clouds Are Clearing
Since the beginning of summer, the entire nation has adjusted to a new way of business and, in many respects, a new way of life. Businesses have reached a “new normal” for revenues and operating expenses. Some industries are likely to see ongoing “extraordinary” expenses as business continues to adjust, but earnings visibility has improved significantly.
Meanwhile, solar developments are, for the most part, back on line. The weeks or months of forced delay cannot be made up, and estimates are new solar capacity growth will be flat to 2019, but new projects continue to come on line. Some expected 2020 projects are now expected to be completed in 2021. But we foresee the fourth quarter of 2020 as a big period for interconnection of new projects.
Need for Renewable Energy More Evident Than Ever
The summer of 2020 also brought into stark relief the future of climate change. Wildfires raged in the West. The Southeast had yet another prolific hurricane season. The Northern Hemisphere experienced the warmest summer on record. Every region of the US saw new climate extremes. These events portend another “new normal” in the absence of significant action to mitigate climate change.
A Robust Quarter for Solar Tax Equity
Based on these observations we expect 4Q to see substantial tax equity investment activity. Modest tax equity investment to date and improved earnings visibility will spur greater investor interest. Substantial 4Q solar project completions will provide ample investment opportunity. Recent and ongoing climate change events highlight the need for immediate action on clean energy.
Contact us to discuss immediate opportunities in solar tax equity investments. Our national network of developers has a robust pipeline of near-term project completions ready for your review. We are available to help identify, underwrite, structure and execute your next tax equity investment now.