“Alternative” to what?
Over the last decade, solar has gone through de-risking as operating performance was proven, this has resulted in decline in financing costs from large banks.
Currently, wind is a $14.1 billion market, solar is about $30 billion.
Lessons learned over the past decades:
– Important to access mainstream capital to scale
– Investing in a clean energy projects with fixed PPA off-take from a utility company is almost like a bond – very safe now, low interest rate on project debt
– Challenge will be financing with floating price of merchant power

Why solar is so developed in the US, two words: Tax credits.
Solar and wind tax credits are the only federal support for solar and wind projects, developers choose Investment Tax Credit (30% credit for installed cost) or Production Tax credit (1.4 cents of credit per kWH generated).
ITC for Solar and PTC for Wind given solar has higher upfront cost and wind generates more kWh, elect the option that results in largest tax savings.
in comparison, Feed-in tariffs were common internationally but now not so common; we are witnessing more adoption for import duties, tax holidays, accelerated depreciation or a combination of these.

How to make the most of it?
In order to be able to use tax credits, you must already have a tax liability, which is not typically the case for a developer that is low on cash. This means the investors in clean energy projects are really large corporations. This lends credibility to the market and can be seen as a good thing for now.
Phase out of tax equity is welcomed by some in the solar and wind industry because it would significantly reduce structuring complexity (ie legal cost and financing delays)

The ageing factor: Depreciation:
– Higher depreciation expense reduces taxable income and reduces taxes owed
– Depreciation is due to accounting recognition of the asset’s loss in value, if you have a $10M solar project and a 20yr useful life your “straight line depreciation expense” would be $500k annually.
– Tax reform had some macro impacts on tax equity, but the biggest impact at the micro level is the depreciation on an asset, can now depreciate 100% of the asset in year 1, meaning you could claim up to $10M in depreciation in year 1 in the example above.
– Depreciation is a loss but people only care about it if you pay taxes

Limitations to project finance:
– Hard to get tax equity investor without long term PPA contract, they want to see reliable future cashflows available to pay back their investment
– Hard to scale (ie bespoke contracts and documents)
– Lots of friction (ie a lot of parties and lawyers)