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Renewable energy project financing: Impacts of the financial crisis and federal legislation

This report, by the National Renewable Energy Laboratory (NREL) explores the impacts of key market events on renewable energy project financing and development. Extraordinary financial market conditions have disrupted the flows of equity and debt investment into U.S. renewable energy projects since the fourth quarter of 2008. The pace and structure of renewable energy project finance has been reshaped by a combination of forces, including the financial crisis, global economic recession, and major changes in federal legislation affecting renewable energy finance.

Tax credit incentives have been a principal driver of investment in renewable energy projects, but have become largely ineffective in the current economic climate. Reduced corporate tax liabilities have sharply diminished the amount of tax-related investment funneled to renewable energy projects by traditional “tax equity” investors including large investment banks, commercial banks, and insurance companies. The pool of large tax equity investors was small to begin with — including only about 20 institutions in 2008—but has shrunk to approximately four to six active institutions in early 2009. The amount of tax equity investment available from traditional sources will be insufficient to fully support near-term renewable energy project development.

However, utilities and other new investors may increasingly invest in renewable energy projects as new federal provisions become available. Meanwhile, availability of debt funding to finance renewable energy projects is also limited as a result of global credit tightening. Lenders to renewable energy development are conserving capital and limiting their lending activities. The difficulty in obtaining debt is expected to increase borrowing costs for project developers; however, exact interest rates for debt on renewable energy projects are difficult to discern because relatively few projects are being financed in the commercial market.

Read the full report here: Renewable energy project financing: Impacts of the financial crisis and federal legislation.