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Renewable Energy “At the Tipping Point”

July 2014

This article was distributed in the Summer 2014 issue of REsource: Business and Financial Insights for the Renewable Energy Industry

At the end of June, more than 600 key players in the renewable energy market came together for REFF Wall Street, the annual East Coast edition of the Renewable Energy Finance Forum. Shortly after the close of the conference, Timothy Kemper, Co-National Director of CohnReznick’s Renewable Energy Industry Practice, spoke with Michael R. Brower, President and Chief Executive Officer of the American Council on Renewable Energy (ACORE), which co-sponsored the event, for a discussion on the state of the industry.

Timothy Kemper: From your perspective, Michael, what was the key takeaway from REFF Wall Street?

Michael Brower: I think the key message is that the clean energy market is at a tipping point in terms of having the momentum and the critical mass it needs to be a vibrant component of the overall energy market. This was reinforced by the results of polling that we released at the conference: Of the 800 leaders of small and mid-sized businesses in the Midwest and West that we surveyed, 78% viewed renewable energy as a growth opportunity for the economy, and 81% saw it as advantageous to their own businesses. These overwhelming percentages clearly indicate that when Congress is slow to provide clarity on critical tax issues relating to renewable energy, they’re ignoring the demands of their constituents.

TK: A big part of that critical mass is the enormous amount of capital that is flowing into the industry, driving yields down and allowing renewable energy to compete in the marketplace. There aren’t enough renewable energy assets for the capital that is chasing them, which is one of the reasons that investors are moving up the development chain and buying portfolios of assets still in development.

MB: The economic opportunity is one element that is attracting investment capital. But I think another factor is the realization that the total cost of fossil fuel energy is higher than people have traditionally acknowledged.

TK: That’s definitely a factor. When you lock in a long-term investment in renewable, you know what the total cost is. With fossil fuels, there can be significant hidden costs—look at the liability costs that can be associated with coal, for example. It’s one of the reasons we expect institutional investors, which are typically more conservative than private equity funds, to increase their holdings in renewable energy in the second half of this year.

MB: I think it’s telling how the investor community is responding to ongoing tax uncertainty by coming up with new financing vehicles like YieldCos that essentially sidestep the tax credit issue. Investors aren’t letting a lack of clarity on tax credits impede their access to renewable energy opportunities.

TK: YieldCos definitely provide a capital solution the industry needs, and they are going to drive yields down. And if you look at the success of the NextEra IPO, which was over-subscribed by a factor of two and which initially had a target price of $15 and ended its first week trading at $34.60, I think YieldCos will quickly find acceptance in the market. It won’t be long before analysts start covering YieldCos like they do other assets.

MB: As important as fair and equitable tax treatment is…and it is very important…I’d rather have renewable energy driven by market forces and most people I know feel the same way. It’s one of the reasons to be encouraged by the Environmental Protection Agency’s proposed Clean Power Plan rule, which supports state renewable portfolio standard programs and allows states to include their participation in Regional Greenhouse Gas Initiative-like programs as part of their overall carbon dioxide strategies. ACORE’s ongoing analysis of the status of renewable energy in each of the 50 states paints a clear picture of the impact that measures like this can have. We support this ongoing analysis and think it’s a big step in the right direction.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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