utah.bank 12 FOR COMMUNITY BANKS, THE SUN ALSO RISES SOLAR TAX CREDIT INVESTMENTS NOW MORE ACCESSIBLE By Josh Miller, CEO, KeyState Renewables For more than a decade, large financial institutions like U.S. Bank and Wells Fargo, joined by Fortune 500 giants like Apple and Google, have been the dominant players in solar investment tax credits (ITCs). Driven by federal incentives, these companies have provided funding for the largest solar projects in the country, collecting healthy returns while raising their corporate profiles as environmental/social/ governance (ESG) leaders. The 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. The recently passed Inf lation Reduction Act is a transformational bill with provisions to entice large numbers of mid-size businesses and community banks to deploy capital into renewable energy 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 January 1, 2022. This 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 over the next decade. Community banks are the logical source of financing for solar ITCs and traditional loans in response to this expected f lood of mid-size renewable projects. Solar ITCs have a notably better return profile than other tax credit investments commonly made by banks. Solar ITCs and the accelerated depreciation associated with a solar power project are fully recognized once built and producing power. This is quite different from other tax credit investments, such as new markets tax credits (NMTCs), lowincome housing tax credits (LIHTCs) and historic rehabilitation tax credits (HTCs), where credits are recognized over the holding period of the investment (five, seven, 10, or 15 years). Like other tax equity investments, solar tax equity investments require complex deal structures, specialized project diligence and underwriting, and active ongoing monitoring. Specialty
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