With the end of 2019 approaching, the impending phase-down of the federal Investment Tax Credit is top of mind for solar executives.
The cause got a shot of hope late last month, when lawmakers introduced companion bills that would extend the credit for five years. Though companies have officially refined step-down strategies — the most popular option being safe-harboring solar modules — some executives are now also openly prognosticating about the likelihood of an extension.
SunPower CEO Tom Werner puts the odds of an ITC extension at around 30 percent, up from zero percent at the beginning of 2019. The recent introduction of extender bills gives Werner hope — “early signs” that lawmakers are interested in a bipartisan solution for renewables. But he thinks they’re unlikely to pass in their current form.
“On those two bills, we’re not optimistic,” said Werner on the company's most recent quarterly earnings call. Instead, if lawmakers do extend the solar tax credit, he expects they’ll do so at the end of the year.
SunPower plans to produce 200 megawatts of modules exclusively for its safe-harbor plan.
U.S. residential front-runner Sunrun put the odds even lower than SunPower does, at around 25 percent. Though Sunrun supports an extension and has said it will advocate for one, CEO Lynn Jurich said the company is not counting on its passage.
To hedge that risk, Sunrun said it's created a nonrecourse debt facility designed to offer the company flexibility as it copes with the phase-down. The company offered limited details on the arrangement during its Q2 earnings call. According to a note from Bank of America Merrill Lynch, “the facility will allow [Sunrun] to fund an ITC safe-harbor at the project level with minimal corporate equity.”
“We are doing our best to structure it such that whether or not there is an ITC extension, we have kind of covered our bases in terms of risk and profit,” said Sunrun co-founder and executive chairman Ed Fenster on the call.
Fenster said the company has already begun collecting “small amounts” of safe-harbored inventory.
That two-pronged approach — advocating for an extension while preparing for a future where one doesn't materialize — has become the most commonly cited solution to the tax credit uncertainty.
"Fairly long odds"
Though solar credits were extended in 2015, it's unclear if a similar compromise is possible in the current political climate. Greg Jenner, a tax lawyer at Stoel Rives, told Greentech Media that the recently introduced extender bills "face fairly long odds" as 2019 draws to a close.
"Passage of any tax legislation during a presidential election cycle is problematic, and perhaps even more so this election," said Jenner. "The only tax legislation likely to pass, if any, is a bill to extend tax provisions that have or are about to expire. Even then, the chances are that this would only occur as part of a larger appropriations package and not as freestanding legislation."
Adding on another extension, after the deal negotiated in 2015, may also leave a bad taste in some lawmakers' mouths and curtail support, according to Jenner. In 2015, legislators compromised on the current phase-down.
Vivint Solar CEO David Bywater, however, said the will-they-or-won’t-they environment surrounding an ITC extension is “illogical” because of widespread and bipartisan support for renewable energy.
During Vivint's Q2 earnings call, Bywater said the company would join industry peers in “vigorously advocating” for what he called a “proven and efficient government policy.”
“The fossil fuel industry has benefited from direct and indirect support for well over a century, and the renewable energy industry that is employing so many Americans deserves a level playing field,” said Bywater on the call. “Because Americans value pollution-free power, job creation and energy independence, extending the ITC will enable the solar industry to continue its growth and bring the economic and environmental benefits of renewable solar energy and solar jobs to all regions of America.”
Just the same, Vivint, like others, is safe-harboring equipment in case the ITC is not extended.
Boost for equipment suppliers
Moves to stockpile equipment are tightening supply and helping manufacturers. First Solar affirmed in its Q2 earnings call that the ITC has increased demand for product, with some customers even asking about availability for its older Series 4 product.
Inverter manufacturer SolarEdge said it does not expect any safe-harbor income for Q3, though it is in discussions with some customers.
“We assume that we will see some safe-harbors,” said CFO Ronen Faier on the company's Q2 call. “The shape, form and numbers will be disclosed...toward the end of the year.”
Competitor Enphase, however, forecasted $6 million to $10 million in safe-harbor-related revenues for Q3. CEO Badri Kothandaraman said Q4 is expected to be the largest for safe-harbored products.
“Our strategy is to first address the intrinsic demand from all of our customers, followed by safe-harbor demand,” said Kothandaraman on Enphase’s Q2 call.
The safe-harbor shuffle will continue through Q4, when the industry may get some clarity on the likelihood of an extension. Despite his "long odds" comment, Jenner said that "one cannot rule out the possibility" of lawmakers enacting the current extender bills.
But if 2015 is any indication, the industry won't have an answer until the final hour.