Interviews February 10, 2015

David Revelt Reviews the State of the U.S. Solar Industry

We sat down with David Revelt, counsel in Alston & Bird’s Real Estate & Finance Investment Group, to discuss the state of the solar industry in the United States, its growth and what the future holds against the backdrop of expiring state and local rebates and subsidies and the 30% federal investment tax credit.

What is the current state of the solar industry in the United States?

The solar industry is booming and has been doubling in size every few years. My favorite metric is that more solar has been installed in the past two years than the previous 30 years combined. This tremendous growth is a function of steep price declines for solar panels (led largely by overseas module manufacturers), low cost capital for project financing and strong public policy initiatives favoring renewable generation. Given these declining costs, solar has become competively priced relative to other forms of generation, such as coal and nuclear power. Particularly in California, Arizona and Hawaii solar is frequently the cheapest form of generation.

How do tax credits and other rebates factor into solar financing?

Many state and local rebates and subsidies have already expired. The major incentive remaining is the 30% federal investment tax credit (ITC), which will be reduced to 10% after 2016. Particularly for utility-scale projects, we expect a flury of activity between now and the end of 2016 to ensure the commencment of operations prior to the 2016 deadline. The reality is that large projects require several years to develop and at least a year to construct and interconnect to the grid. So, most projects installed prior to 2016 have likely been in development for quite some time. Particularly for wholesale distributive generation, the expiration of the ITC will likely cause a small increase in pricing, and given that many power purchase agreements (PPAs) are subject to a competitive bidding process, the expiration of the ITC will likely cause a gap in the development timeline before prices increase to allow post-ITC projects to win PPAs.

What is the future for the solar industry after the ITC expires?

In my view, the future is very bright. There will likely be a slow-down in 2017 and 2018, but given the increase in projects over the next two years as the ITC expires, there may not be much of a deviation from the overall trend.

There are several positive developments for the industry. First, the increasing public policy support for energy storage (largely batteries). For instance, California intends to procure 1,325 megawatts (MW) of storage by 2024. If implemented correctly, storage will allow solar to shift from a peaking “as-available” form of generation to provide some baseload generation. Second, solar development companies are finding ways to finance projects (or project portfolios) through public capital markets, including “yield cos” and securitizations. Once established, public financing should provide a stable, consistent source of capital for solar projects, which will ultimatley provide a stronger financial footing for the long-term growth of the industry.

How did you get involved in the solar industry?

In the mid-2000s, I was real estate attorney representing commercial developers but had a significant interest in renewable energy. As the commercial real estate market slowed, I began evaluating different renewable energy sources –such as wind and biofuels– until I connected with solar. Large scale solar projects are surprising similar to other types of commercial real estate development.

Prior to joining Alston & Bird, I was the director of development for a utility-scale solar development company. We specialized in wholesale distributive generation at the 2 MW – 20 MW range, largely in the southwest and southeast United States. Our business model was to find locations where we could obtain low-cost interconnection with a utility company off-taker, and we largely sold projects to builders and long-term owners once they were “shovel ready.”
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