Utility-scale solar developers offer a unique perspective on issues impacting the renewable energy industry; conceptualizing potential project opportunities from inception.

Rob Masinter, COO of Redeux Energy, sat down with Suncast Media this fall to discuss key issues affecting the industry, including: the Inflation Reduction Act, energy storage, and supply chain disruptions.

Above: Rob Masinter, COO of Redeux, speaks with Suncast Media

Q&A: Top Industry Trends

Suncast Media: What does the inflation reduction act (IRA) mean for utility-scale solar and storage developers?

Rob Masinter: The IRA will provide a huge boost for the clean energy industry. It will drive up the volume of deployment enormously – for solar alone we’re looking at 30+ gigawatts of annual deployment expectations for the second half of the decade per year. It’s incredible.

Suncast: With the IRA, the tax credits are changing. Investment Tax Credits (ITC) are now available to eligible energy storage projects, and you no longer have to pair energy generation with storage to go after those tax credits. How does this change the game?

Masinter: The playbook just changed, and it will allow developers to be more strategic and flexible with how they’re designing solar and storage projects. They no longer have to pair a solar project with storage just to capture a financial incentive on the storage. Instead, they can leverage the ITC to build a standalone storage project where storage alone makes the most sense, and where it will best support the grid. Where hybrid solar-plus-storage projects are the right answer, they will be deployed.  This will allow us to put more storage on the grid, to integrate renewables, and ultimately improve power quality and reliability.

For solar right now, Production Tax Credits (PTC) are also a game changer. Industry players can now make tactical decisions about whether to utilize PTC for solar in one market, and ITC in another.

Suncast: How are you (Redeux Energy) thinking about the development right now and did the IRA change the way that you approach your market?

Masinter: The IRA is like pouring gasoline on a fire; and it will drive a lot more deployment that much faster. We’ll see more capital coming into the market, and a lot of opportunity for developers and owners.

Redeux is a project developer. Developers have to consider answers to questions including where are your core competencies, where are you really good, what’s your differential advantage? Our differential advantage lies in our ability to prospect attractive energy markets, secure land, systematically develop our project pipeline, and structure win-win partnerships with asset owners.  We are fortunate to have secured very strong capital backing to operate at a multi-GW scale.

In our current economic environment, and with the IRA boost, high-quality pipeline is increasingly valuable. That is our focus.

Suncast: Can you talk more about supply chain issues affecting the industry and how things might change moving forward?

Masinter: I think the whole supply chain is going to shift from being China-centric (which has put a chokehold on project progress in recent years) to other markets, including the U.S. Fortunately, the IRA provides manufacturing tax incentives, so we’ll see a big push to develop manufacturing capacity in the U.S., which will be important to alleviating supply chain disruptions.

Within a decade, there will be a shift, and a substantial percentage of overall global manufacturing will move to the U.S. It’s a long-term shift, and those in the industry should not assume that the shift will lead to price reductions for materials integrated into solar projects, but the materials will be more readily and reliably available; that security is crucial.

A finger on the pulse of the solar industry

With utility-scale solar and storage projects across the country, Redeux is will exceed 2 GW of pipeline capacity by the end of 2022, a 400% increase from year-end 2021.

Redeux’s development pipeline consists of large, hybrid solar and storage projects in eight states within the MISO, ERCOT, SERC and WECC energy markets.

Redeux’s velocity of growth in pipeline capacity and market coverage will continue to accelerate. The company will keep its finger on the pulse of evolving issues within this dynamic industry and share its perspectives.

Are you interested in learning more? Get in touch today.

By Christina Derlath, Director of Finance

Christina Derlath has extensive experience in project finance and tax in the renewable energy industry.

Financing a utility-scale renewable project can be an arduous and intricate process. Utility-scale renewable projects involve many moving pieces and incur their share of financial risks, but they also present sponsors with unique opportunities to generate revenue while creating clean, renewable energy. Project finance moves crucial renewable energy projects forward while protecting a sponsor’s assets. Through project finance, sponsors and investors can capitalize on the vast financial opportunities such projects provide while minimizing risks.

One of the things that makes renewables a sound investment is the fact that solar energy and wind power comes from natural processes that are constantly replenished. The sun will continue to shine, and the wind will continue to blow, providing us with a resource that is virtually inexhaustible. As our country continues to strive towards its clean energy goals, the renewable  industry continues to grow, while renewable infrastructure becomes more affordable.

With the passage of the Inflation Reduction Act (IRA), there will be more opportunities for those looking to develop long-term renewable energy assets. The IRA’s extensive tax credits provide much greater market certainty for sponsors of renewable projects and will influence project finance for the foreseeable future.

Breaking Down Project Finance

Energy projects could not come to fruition without project finance. During the project financing process, lenders assess a project’s risks and future cash flow, loaning money to develop the project. To protect the sponsor’s other assets, sponsors set up an independent company with an independent balance sheet for each project. This way, if something goes wrong, the sponsors other assets are not at risk and lenders have little to no recourse to the sponsor.

In a project finance structure, three players come together to make up the capital stack:

  • The cash investor –The sponsor, the cash investor on the project, builds the project, arranges debt, and raises tax equity.
  • The tax equity investor – This investor monetizes all the tax benefits, including tax depreciation and credits.
  • Debt – The lender loans money to the sponsor to support specific projects typically at the level above the tax equity partnership (i.e., back-leverage).

Depending on their risk appetite, project sponsors may choose to invest in a renewable project at different phases of the project lifecycle. Each key stage of utility-scale renewable projects come with unique risks and returns:

  • Development – Consisting of land acquisition, interconnection, permitting, and offtake, the development phase offers the highest risks and highest rewards for sponsors. Few projects actually survive the development phase. However, sponsors that invest in a project during the development phase realize high returns if the project succeeds.
  • Construction – Consisting of building and installing the project infrastructure, the construction phase offers sponsors an opportunity to charge a construction premium for building the project.
  • Operations – Consisting of running and maintaining the renewable energy project, the operations phase is lower risk. The operational period is 35 to 40 years and is attractive to investors seeking long-term steady cash flows.  

How the Inflation Reduction Act Changes Project Financing

For the solar industry, the passage of the IRA provides a range of new opportunities in the form of tax incentives and federal tax credits. These incentives are crucial to utility-scale renewable projects because they allow for the financing of projects that may otherwise be too costly or speculative for any one investor to carry on their balance sheet.

The aspects of the IRA that will lead to more renewable energy deployment include:

  • Expansions of existing tax credits – Solar projects are now eligible for Production Tax Credits (PTC), which were historically reserved for wind projects. Before the IRA, solar projects were limited to Investment Tax Credits (ITC), which were one-time credits claimed in the year the project was placed-in-service. In contrast, solar PTC is claimed every year over a 10-year credit period.
  • Extensions of existing tax credits – The IRA restores the full rate of PTCs and ITCs for at least the next ten years, until 2032 assuming the prevailing wage and apprenticeship requirement is met.
  • New tax credits – Standalone energy storage projects are now eligible for ITCs, creating new investment opportunities in energy storage.
  • Tax credit adders – This change allows sponsors to get more of their investment back while also helping to create jobs, reduce our reliance on imports, and incentivize the transformation of brownfield spaces.
  • New ways to monetize tax credits – Tax credits can now be sold to unrelated parties starting in 2023, increasing tax credit flexibility. Additionally, for the limited groups of investors that are eligible for the new direct pay proposals, developers can treat tax credits generated by a renewable energy project as equivalent to a payment of tax on the developer’s filed tax return.

This boost in renewable energy deployment will also create jobs and positively contribute to climate change. Over the next decade, the IRA is expected to create 200,000 jobs and offset an additional 747 million metric tons (MMT) of carbon emissions. Studies estimate that the IRA could help the United States achieve roughly two-thirds of President Biden’s 2030 carbon reduction goals.

As IRA benefits begin to impact the market, new players will enter the market. Project financing structures will shift and expand due to increased flexibility, which accommodates the economic preferences of different investor types. As an organization that evaluates project economics from the perspective of sponsors and owners, Redeux pays close attention to these trends.

Throughout market shifts and industry growth, project finance within the renewable energy sector will become even more nuanced and complex. It is important for all project sponsors and tax equity investors to work closely with experts and consultants who have a deep understanding of the process and can get renewable deals done.

With the changes mobilized by the IRA, the solar industry’s market value is projected to continue its impressive growth, driving an additional 222 gigawatts (GW) of solar over the next decade compared to a non-IRA scenario. That makes right now a better time than ever before to learn more about Redeux’s approach to development and project finance.

Are you interested in learning more about utility-scale solar project finance? Get in touch today.

By Ryan Kelly, Senior Manager, Land Acquisition

The farming and solar energy industries may appear to be at odds with each other regarding land use – both need large land positions in order to succeed. That said, solar developers and farmers have been working together for decades, forming mutually advantageous partnerships. Recent studies have found that co-locating solar energy generation facilities with active agriculture (sometimes referred to as “agrivoltaics”) can provide a wide range of benefits for crop production and pollinator habitat as well as environmentally responsible local economic development.

Many farmers are not aware of the full scope of benefits, and may not even know that leasing their land for solar projects is an option. A partnership with a solar development company could be exactly what today’s farmers need to address mounting financial challenges.

A Shifting Agricultural Landscape

In recent years, farmers across the United States have struggled with water sourcing. Drought conditions have made it difficult to properly maintain crop output without significant cost.

Throughout 2021 and 2022, farmers are feeling the squeeze of inflation. Their operating margins are shrinking as they must pay far more for weed-killing chemicals, crop seeds, fertilizer, equipment repairs and seasonal labor. Cost inputs have become harder to control, and swings in commodity prices have left farmers on uncertain financial footing.

This environment has incentivized farmers to seek additional, more reliable sources of revenue, including partnerships with solar power companies.

Benefits for Farmers and Their Community

The key benefits farmers can gain from a solar partnership include:

  • Reliable revenue stream. Revenue from leasing farmland for utility-scale solar project development can provide a stable source of annual income measured in hundreds of thousands, or even millions of dollars, depending on acreage. The solar project pays for taxes associated with the energy facilities on the leased land.
  • Long-term partnership. Partnerships with solar projects can last over 40 years. Decades of guaranteed revenue will help farmers hedge against commodity cycles and navigate industry consolidation challenges.
  • Outside-the-box land use. A non-traditional farmland use option can be especially appealing to those who newly inherited or acquired the land.
  • Building a legacy. The partnership provides an opportunity to build wealth and create a long-term legacy for generations to come.
  • More water production. Solar arrays not only reduce water use, they can allow groundwater to recharge, leading to increased natural water production over time.
  • Community support. Solar projects increase the tax base within the community, create jobs, and can even benefit schools.
  • Clean, low-cost energy. Solar projects offer an environmentally sustainable use of land resources, reduced energy costs for local homes and businesses, and reduced greenhouse emissions (compared to traditional energy generation).

Farmers and Solar Developers: A Long and Meaningful Partnership

Solar developers have a long history with the farming community. Since the 1980s, solar companies have been working with farmers of all sizes–from large high-volume agricultural producers to mid-size farms to small family-owned operations. Due to technological advancements in the solar industry, the size and scale of solar projects on farmland have greatly increased in the past five years.

Utility-scale solar companies have been leasing land from farmers for clean energy facilities that typically require 500 to 2,000 acres. Farmland underneath or near electric transmission lines is particularly appealing to solar developers because the land often requires little to no dirt work to prepare for installation.

Addressing Common Questions and Concerns

Farmers, understandably, have questions about the potential impact of solar projects on their land. Solar developers work closely with landowners to ensure all concerns are addressed before installation begins.

  • Impact to farm output. If crop production is impacted during the development of a solar project, the solar developer will ensure that the lost yield is compensated. During the operating period of the project, the farmer will receive more revenue through the solar partnership than the foregone crop production.
  • Reduction in prime cropland. Solar developers are thoughtful about the land they install on and are sensitive to crop needs. They are seeking underutilized, marginalized farmland that can be optimized through solar partnerships. Solar developers do not go after fertile land that could be used for high-yield crops
  • Reputation of entities. Some farmers are worried about working with reputable entities and need assurance that if something were to happen, the farmers would get their land back and the land would be restored to its original use. Prominent and experienced companies such as Redeux Energy can be trusted to maintain and restore all leased land at the conclusion of the project.
  • Coexistence with oil & gas activities. Farmers should be able to maximize revenue by leasing their mineral rights to oil & gas companies and their surface rights to solar developers. The two energy producers can easily coexist on shared farmland.
  • Concerns about proximity to homes, viewshed. During the development process, all concerns about the proximity and viewshed of the panels are addressed. Developers collaborate with landowners and community members to ensure agreement and comfort.

Growing Opportunity

The farming and solar industries can help each other grow. If developed strategically, solar panels can boost farm and crop productivity:

  • Agrivoltaics save water and energy while improving animal welfare
  • Planting pollinator-friendly plants under the panels, including native grasses and wildflowers, can improve crop production
  • On hot summer days, solar panels provide shade that lower temperatures and could benefit crops

As solar technology advances, farmers and solar developers will find even more ways to work together and build mutually beneficial partnerships.

Are you interested in learning more? Get in touch today.

By Joe Martin, Manager, Land Acquisition

Thousands of people around the country own land, and many are not aware of its untapped potential. On agricultural land alone, experts estimate that by installing renewable energy infrastructure on just 1% of existing underused farmland, solar panels could provide 20% of electricity for the U.S.—and farmland is only a portion of usable landholdings. The solar industry operates on just over 0.5M acres of installed capacity, but needs an additional 17 million acres of land to achieve an all-electric power production scenario by 2050, a scenario that would support sustainability and energy independence from coast-to-coast.

As landowners struggle amidst inflation, supply chain challenges and commodity cycles, a mutually beneficial partnership with a solar power producer could provide the reliable revenue stream landowners need to thrive for generations.

Underutilized land nationwide—agricultural, rangeland, transitional and post-industrial—is being given new life through solar development projects. Landowners working in farming, ranching, timber, mining and oil & gas have all discovered that their land can do more for them and their communities.

By leasing their land to solar power producers, landowners reap economic and environmental benefits while continuing operations alongside the solar facility. Here are the top 6 benefits of leasing your land for solar development:

1. New Revenue Streams

The number one incentive for most landowners who lease to solar project developers is income. Through the lease, landowners can significantly increase annual cash flow, allowing them to make more overall per acre than they would through farming, ranching, etc.

Unlike commodity markets or crop outputs, the lease income is reliable and predictable. Throughout the full life of the project–which can be over 40 years– landowners receive steady payments, supporting their family through multiple generations. This long-term stable source of passive income may be very beneficial for planning during challenging times.

2. A Long-Term Partnership  

When you partner with a solar power producer, you are investing in the future of your land. The solar developers care deeply about your land and take great care in maintaining the acreage. The multi-decade lease will generate income when the facility is in use while also fostering land regeneration. After the lease is up, the land is restored to pre-construction conditions, ready to benefit the next generation.

3. Support Energy Stability and Independence

Energy stability and independence are key concerns across the country, especially as fuel prices continue to rise. Leasing your land for solar project development creates a renewable energy source that can support your community’s energy needs. Solar energy generation projects create enormous value with minimal long-term environmental impact. For those with ESG goals, or those who are working with businesses or investors who do, solar development can help meet those goals through sustainable operations.

4. Boost Local Tax Revenues and Create Jobs

Large scale solar project development starts with the local community in mind. The developers understand local areas and landowner expectations and work closely with local stakeholders to bring the facility to life. Every project has tremendous potential to benefit the greater community through economic and workforce development. The construction and operations team for the project is sourced locally, bringing jobs directly to the region, some of which can be held for decades.

Additionally, solar development boosts local tax revenue, which supports community needs. Solar projects also improve the likelihood that the area will attract other technology and industrial development, allowing the region to continually prosper.

5. Unlock Hidden Potential in Your Land

You could be sitting on land that is very valuable for solar development and not even know it. Large, utility-scale solar projects can be built on as little as 500 acres of relatively flat land. Ideally, that land would be close to existing, high-voltage electrical transmission infrastructure and is  be impacted by flood plains or wetlands.

These projects can be designed to coexist alongside landowner activities, so if you’re leasing a portion of your land to the solar facility, you can continue using the land surrounding the solar arrays for grazing, crop growth, energy extraction, logging, etc. Giving unused–or underused–land a new purpose could notably increase your property value.

6. Hedge Against Commodity Cycles, Farm Input Inflation, and Property Tax Increases

External, sometimes international, forces can lead to unpredictable commodity cycles and farm input inflation, leaving farmers and ranchers with income instability. This can severely impact the livelihood of those in the agricultural industry, with few opportunities for alternative earnings. By leasing your land to a solar power producer, you can generate continuous revenue that acts as a reliable cushion protecting you from sharp market swings and unpredictable annual revenue sources.

As an added benefit, the solar project owner will cover any related increase in property taxes on the land they lease, further improving the financial situation of landowners.

Leasing your land and entering a long-term partnership with an experienced utility-scale solar project developer could transform your land and your community. Are you interested in learning more? Get in touch today.