US solar shifts from tax breaks to long-term contracts to fund new capacity

Who pays for new generating capacity once the federal investment tax credit winds down? Increasingly the answer is market discipline: power purchase agreements are taking over from state support and moving the financial burden onto corporate buyers.

The phase-out is reshaping developers’ financial models. Research firm Enverus Intelligence Research reviewed more than three thousand US projects slated to start up by the end of next year and found that 680 solar and 79 wind sites lean critically on tax credits, because without subsidies their levelised cost of energy runs above forecast market prices.

• Developers are signing higher-priced offtake contracts to make up for the lost incentive.
• An alternative is direct project ownership by large technology companies.
• Renewables move into head-to-head price competition with other generation on equal terms.

Removing the credits also cools the appetite of traditional financiers, analyst Brinna Foley notes; absent the breaks, developers count on buyers to cover costs. The tech giants are already adapting, with Alphabet closing a large clean-power deal earlier this year. The shift trades a policy prop for the balance sheets of the companies that consume the power.

Source: PV Magazine USA