I have a good excuse for why I haven't posted anything in the last 6 weeks. I've been watching the financial crisis unfold and working hard with my team to keep ahead of the game. Frankly, I've been hesitant to write anything about it until now--the speed at which it has progressed and level of uncertainty has made predicting the outcome a fool's game.
While I think it's premature still to say exactly what will happen in the bigger picture, it's clear that uncertainty in construction debt and tax equity markets is having a Darwinian effect on the US downstream PV industry. The result will undoubtedly be consolidation and some short term pain.
The great irony is that after finally getting the solar investment tax credit (ITC) passed, tax equity markets have gone sideways, making it very difficult to actually take advantage of tax benefits to finance solar power projects. Tax equity investors have typically been large banks or corporations with big tax exposure who then invest in solar, low-income housing, or wind projects. They get a part of their return on investment in the form of tax credits which they use to reduce their tax bill.
The financial crisis has created large losses for many of those same investors. As a result, there is short term uncertainty about how big their tax bills will actually be, making it difficult for them to commit to large volumes of tax equity investments like solar power projects. The immediate impact is that there has been a short term "drying up" of tax equity relative to market indications earlier in the year.
There's good reason to think tax equity markets will come around. But, I think there will be many who don't have the staying power to wait for a solution. A phrase we're hearing often from banks is the "flight to quality" as they look very closely at who they think is viable in this environment. The key things they're looking for are the quality of the management team and the company's financial strength as a project sponsor. We're feeling very fortunate to have raised a large equity round earlier this year and that we have established good relationships with our banking partners.
While the ultimate outcome of the financial crisis is still unclear, I think it's safe to say that over the next six months the downstream PV industry is going to become a lot more concentrated. Those remaining will be the quality players who have the access to capital and banking relationships to execute their business at scale.