Guest Commentary By Josh Miller, KeyState Renewables
For Community Banks, The Sun Also Rises
Solar tax credit investments now more accessible
Bank and Wells Fargo, joined by Fortune 500 giants like Apple and Google, have been the dominant players in solar investment tax credits. Driven by federal incentives, these companies are collecting healthy returns for funding some of the largest solar projects in the country.
Te benefits of solar ITCs are hard to ignore. Tax credit investors funding renewable energy projects can significantly offset their federal tax liability and recognize a meaningful annual GAAP earnings benefit. From 2005 to 2020, renewable energy tax credits have fueled the explosive growth of solar and wind power production nearly 18-fold.
Te recently passed Inflation Reduction Act includes provisions that will entice large numbers of mid-size businesses and community banks to deploy capital into renewable energy
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projects across the U.S. It extends solar ITCs for at least 10 more years (until greenhouse gas emissions are reduced by 70%) and retroactively increases the ITC from 26% to 30%, effective Jan. 1, 2022. Tis extension and expansion of ITCs, along with other meaningful incentives included in the bill, will result in a significant increase in renewable energy projects being developed and constructed throughout the next decade.
Community banks are the logical source of financing for solar ITCs and traditional loans in response to this expected flood of mid-size renewable projects. Solar ITCs have a notably better return profile than other types of tax credit investments commonly made by banks. Solar ITCs and the accelerated depreciation associated with a solar power project are fully recognized once it is built and begins producing power. Tis is quite different from other tax credit investments, such as new markets tax credits, low-income housing tax credits and
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