This is an extract from a recent report “Expectations for Renewable Energy Finance in 2023-2026” by American Council on Renewable Energy (ACORE). ACORE surveyed companies that actively develop or finance U.S. renewable energy projects about their companies’ plans for 2023 and their outlooks for growth over the next three years. The survey results contained in this report represent the near- and mid-term outlooks of some of the most prominent companies in the sector.
Investment in the U.S. renewable energy and energy storage sectors in 2022 remained steady at $54.8 billion, while still falling short of the annual investment needed to achieve the administration’s objective for power sector decarbonization by 2035. Notably, investment in solar projects decreased by 8%, and investment in wind projects fell by 25%, while investment in energy storage projects increased to a record $5.3 billion.
The IRA has already increased companies’ participation in the market in 2023. All developers and most investors plan to increase their activity in the U.S. renewable energy sector compared to last year. Eighty-four percent of investors plan to increase their renewable energy investment by 5% or more.
However, many companies are proceeding cautiously. Survey respondents commented that headwinds such as supply chain constraints, trade restrictions, interconnection queue delays, and insufficient transmission capacity create significant risk challenges. These challenges can lead to delays in deal flow, longer lead times, and increased project costs, although the effects of these factors on their risk profiles are varied.
Many developers also cite difficulties in attracting offtakers for their projects. Thirty-nine percent report securing power purchase agreements (PPAs) with offtakers has become moderately or significantly more difficult over the past year, while an equal percentage report that securing PPAs has become easier.
As a result, one-third of developers have reduced their risk profiles in 2023. However, most large developers and many investors are willing to take on increased risks. Forty-two percent of surveyed developers report an increase in risk profile compared to last year. And among larger developers that operate U.S. renewable energy businesses with revenues of $500 million or greater, 83% report their risk profile has increased. Thirty-nine percent of surveyed investors indicate a moderate increase in their risk profile this year compared to 2022, while 52% report no change.
More than one-third of investors and developers expect a decrease in tax equity accessibility this year, while others expect an increase. Notably, of the surveyed investors who specifically invest in tax equity, 36% report a decrease in tax equity this year compared to 2022, while 45% see an increase. Developers expect tax equity to be the most available financing source over the next three years, while investors rank tax equity in fourth place. Both groups expect transferability to play a sizable role in the market. Investors, on average, anticipate project-level debt and cash equity to be the most available project financing sources in the market in 2023- 2026, while developers rank tax equity and transferability as the top financing sources.
Over 80% of surveyed investors plan to utilize transferability or direct pay. Most investor respondents (61%) report plans to utilize both the transferability and direct pay provisions of the IRA. Most respondents think corporations and banks — including existing tax equity investors — will be the most likely entities to purchase transferable tax credits. Others also mentioned insurance companies, equity firms, and oil and gas companies as potential purchasers.
Many companies plan to participate in domestic efforts to expand clean energy manufacturing. More than one-third of investors (38%) report plans to invest in domestic clean energy manufacturing facilities in the U.S. to take advantage of government incentives designed to reduce reliance on imported solar, wind, and energy storage equipment.
Investors collectively rank utility-scale solar, energy storage, and commercial solar as the top three most attractive clean energy sectors for investment over 2023-2026. Investors also selected these technologies as most attractive, demonstrating continued investor preferences for proven technologies experiencing significant recent growth. Meanwhile, PJM, MISO, ERCOT, and CAISO dominate the top power markets for renewable energy investment and development in 2023-2026.
Investors unanimously expect the U.S. to increase in attractiveness for renewable energy investment in 2023-2026 compared to other countries. Most investors expect the attractiveness of renewable energy to increase compared to other asset classes over the next three years. The majority of investors (83%) expect the attractiveness of renewable energy to moderately or significantly increase compared to other asset classes in their portfolios in 2023-2026. No investors expect the attractiveness of renewable energy to decrease.
The complete report can be accessed here