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Perspective

Green Light for Green Energy? Not So Fast

May 12, 2016| By Mariano Trevisan | Property | English

Region: North America

As recently as the beginning of this year, investors, developers and owners of renewable energy risks in the United States had cause to celebrate a seemingly bright future. The federal Consolidated Appropriations Act was passed in December 2015, extending the Production Tax Credit (PTC) and Investment Tax Credit (ITC) for qualified renewable energy risks, including the two most common utility-scale technologies of wind turbines and photovoltaic (PV) solar panels. Renewal of tax incentives combined with a decade-long trend of lower investment costs, higher output efficiency and trimmed operational costs should lead to the next boom cycle for renewable energy, shouldn’t it? The answer is, “It depends.”

Enter State Tax Incentives, Net Metering Laws and Political Wrangling

Insurance underwriters who work in the energy arena are well aware of the growth of shale gas drilling (aka fracking) and the steady decline in the U.S. coal industry. The fossil fuel industries and the utilities that consume these fuels are politically strong, and with many jobs and their future in the balance, they are fighting back.

Renewable energy is seen by fossil fuel industries as a threat, made more so by support from tax incentives and state net metering laws that credit residential or commercial system owners for the electricity they add to the grid. The fossil fuel industries are waging a fierce battle to force non-renewal of tax incentives or to amend the laws to neutralize or minimize the benefits to their renewable energy competitors.

Using solar PV as an example, California, Nevada and New Mexico are some of the sunniest states that also have the largest potential for solar investment risks, both commercial and residential. State tax incentives and net metering laws have thus far helped foster solar as a growth industry for jobs and installations. Due to recent activity led by fossil fuel interests, however, growth is being stifled and investment in solar is declining. Non-renewal of tax incentives, additional “demand” charges added to electricity bills, rate hikes to panel owners and state budget crises are all playing a role in changing the financial attractiveness of solar investments.

Confusing? You bet.

The patchwork of federal and state renewable energy laws creates a lot of confusion and uncertainty for investors and owners of these technologies. When the financial picture is murky, lending tightens or disappears. These mixed messages between federal and state incentives, particularly in a U.S. presidential election year with the potential for changes to U.S. energy policy, yield a renewable energy industry that is somewhat fragile. But it is getting a bit stronger each day despite the obstacles thrown in its path.

Determining the proper premium for a renewable energy risk depends on the quality of knowledge about the risk, the economics of the particular industry, and rating the correct values for the coverage provided. Understanding tax incentives, net metering laws and fees such as “demand” charges has a direct impact on the revenue streams of renewable energy risks. This in turn has an impact on rated values.

Our dedicated energy teams work closely with our clients to profitably (re)insure renewable energy risks. To learn more, give us a call.

* The Database of State Incentives for Renewables & Efficiency is an excellent resource for information on federal and state tax incentives and other energy programs.

 

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