Name: What are the economics behind clean energy?
Uploaded: 2015-09-29
Duration: 5 min 31 s
Description: Watch panelists from Citigroup, Generate Capital, Goldman Sachs, and SunPower discuss the economic realities and incentives for clean energy at this year's Fortune Brainstorm E.

[ MUSIC ] Investment tax credit is in jeopardy. Maybe, Scott, you could just... briefly first tell everyone about how it's in jeopardy, and what your opinion is of that. Uh- huh. Well, I think there's gonna be a lot of talk about policy over the next year, and we already heard a number of comments starting with the first panel, but the investment tax credit is something that The solar industry and the renewable energy industry, in general, is relied upon to reduce the cost of the capital expenditure for building a project. Right now it's set at 30 % of the capital expenditure of a project. You get back as tax credit. It's scheduled to go down in 2017 to 10 %, which is what it was previously, before it was boosted. About eight years ago or so, as part of the Energy Policy Act of 2005. So I guess ten years. I don't know when it started. So before I get to your opinion, Kim, now your perspective on what the impact of this will be? So I said at the outset that the economics have become increasingly compelling, but also it's still a niche market in terms liquid [ INAUDIBLE ] that we have for solar. Which means that going from 30 to 20 %, sorry 10 %, that 20 % decline, or the 30 to 0 %, is actually a pretty meaningful part of the economics, particularly, given the cap intensity of clean energy. And so, I think by all means the predictions are such that if it doesn't get extended You are going to see a pretty steep decline in 2017 and it's going to take a number of years for the growth to start happening again whereby you will get to about 8 gigawatts of installation for solar. It is being predicted for 2015. Having said that, it's not all doom and gloom. As I said earlier, it is a global market. US may come down, but globally the opportunities I think are gonna be quite attractive. And we also have to remember that there are complimentary powers at the state level. When you both put [ UNKNOWN ] standards are getting upped. We've seen California at 50 %, Hawaii is now at 100 %. Net metering policies are gonna also play a much more meaningful component when it comes to rooftop solar as well. Now, Scott. Go ahead please. Just to add something to that from the Wall Street perspective. It's important to keep in mind it's not just economics, and in my view, Washington is talking to much economics on this and not enough finance. It matters where the capital comes form. Different investors, again, have different objectives, as I was mentioning before. This level of a tax credit, where there's the PTC for wind of the ITC for solar, draws tax equity investors. There are actually units, and they have blocks of capital to invest for their corporations, typically banks or some of the high techs, that have very high income, that means very high taxes, and they will invest Just to get a tax benefit back. When these incentives expire, that tax equity just stops. It isn't a ramp down. On January 1, 2017, I guess it's gonna be, there will not be any tax equity, they'll just wait until the incentives are put back in place. So the source of capital to the market I'm afraid it's gonna be severely jolted here. Do you wish we would stop talking about this? Yes. Very much so. I think this is a totally a misleading conversation and continues to mislead investors all over the world about the state of renewable energy, or sustainability or Even energy. Energy is subsidized, it has been, it always will be, it is a fundamental resource that is required for all of us to live. The government is involved in that, just like the government is involved in building roads and bridges. This is something we should anticipate and expect and we've had a Horribly flawed policy, thinking that tax credits are the way to level the playing field with an already highly subsidized conventional energy sector. And investment tax credits are a terrible way to mobilize capital for renewable energy. It's supply side rather than demand side, so you actually pick technologies instead of outcomes. It, more importantly, is an illiquid market. Most people don't know what a tax credit is. Most people don't want to invest in all the accounting resources necessary to understand whether they can actually get a tax credit. So eight Companies. Literally eight companies have funded 80- plus percent of all of the tax equity in the last ten years. But I assume they've securitized those in the great unwashed [ CROSSTALK ] See, that's the wonderful thing, yes. But that's not the case. Unfortunately, they get 15 or 20 % Rates of return on capital that they invest, that the government guarantees that rate of return. That is insane. That is not efficient capital. But you like to keep it, please. Right? Well, I'd like not abrupt changes. I'd like to have some planning. And I think he said it really well. Let's get a level playing field over time. Now, on tax equity, it is a finite universe, and so therefore they get very high returns. So as the tax credit goes down, there'll be a broader base of investors, so it's not all bad. And of course, the key to all this is that costs have to continue to come down as they have. Come down a half in the the last five years. So as costs continue to come down that solves all of this. That's right. Then you open up to a bunch of different financing. And as you said Yilco would be you and me investing and that's what's happening. You see the mainstream investor getting into solar.

Watch panelists from Citigroup, Generate Capital, Goldman Sachs, and SunPower discuss the economic realities and incentives for clean energy at this year's Fortune Brainstorm E.