Solar Market and Cost Analysis

• • • • • 15 Cost of Capital, Tax Equity (Norton, Rose, Fulbright) 25 25 20 U.S. Tax Equity Investments ($ billion) 0 T 2017 2018 2019 T 山 Tax equity investors invested $18 billion in 2022 ($11 billion in wind and $7 billion in solar)-down 10%, y/y. Investors attributed the downturn to (1) supply chain difficulties, (2) tariff issues, and (3) investors waiting to see the rules for the new credits from the IRA. A significant amount of time was also spent converting PV deals to using the PTC (from the ITC), which is now allowed by the IRA. Tax equity demand for 2023 is expected to be $20 billion-$21 billion, though it may take some projects 9 months to arrange deals as there is a significant backlog of projects. Tax equity represented roughly 35% of solar project costs in 2022 (±5%), but the range will likely have a much higher end due to the use of PTC (pushing projects to 45%) and bonus credits. PTC projects are bit more complicated than ITC projects because they are 10 years and tied to production. So, the offtaker, equipment, and transmission concerns all become more important. Tax equity flip yields increased again in 2022, up from 6.75%-7.5% in 2021, pushed by increases in interest rates and competition for tax equity. Transferability of tax credits now offered by the IRA is expected to bring new investors from U.S. corporations who want to manage their taxes but do not want to set up a tax equity shop. Banks still expect to manage the deals. . • • 10 5 2020 2021 2022 It will likely take 6-18 months to develop a tax credit transfer market because it will take time to educate investors. A large discount on the credits is expected as developers will want long- term commitments, and many companies do not have a long- term idea of their tax liabilities. Tax equity deals for just depreciation are not expected as the deals would be too small. Banks are already starting to work on deals with domestic content and energy community credits, as well as deals with storage taking the ITC and PV taking the PTC. However, final deal terms are awaiting further IRS guidance to come out this year. Banks are planning to do tax equity deals with new credits (48C, 45X, 45V, 45Z), but they expect developing deals to take 12-18 months. Sources: Norton Rose Fulbright Cost of Capital: 2023 Outlook. NREL 46

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