Tech might be slumping but green is growing

Renewable energy firms reap tax benefits.
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When Frank Genova signed into work as CFO at Convergent Energy and Power on August 16, he found himself looking at a balance sheet and 2023 projections that were completely changed from the day before, and for the better. The renewable energy company had struck gold following the passage of the Inflation Reduction Act (IRA).

The IRA aimed to “create opportunities for America’s 33 million small businesses and innovative startups,” according to the White House. Among the happy recipients were renewable-energy companies that found themselves eligible for big tax cuts.

While there was already an investment tax credit in place, the IRA modified and extended the clean-energy credit to “provide a 30% credit for qualifying investments in wind, solar, energy storage, and other renewable energy projects,” according to the US Treasury.

“Overnight, with the passage of the IRA, the capital cost to build these [renewable-energy] assets, [in] round numbers, have dropped from anywhere from 30% to…70%,” Genova told CFO Brew. “It absolutely changes the economics for the broader market.”

Keaton Horner, VP at Orennia Inc., a data company that tracks cleantech, told CFO Brew that the company is hearing there are “too many dollars chasing too few deals now.”

Horner said this phenomenon is isolated to the energy industry, and that renewable energy projects now have a clear path to growth, backed by tax credits. The space has been “derisked,” Horner said, because now 50%–85% of a project’s revenue is coming from credits, attracting VCs that may be in search of companies with clearer revenue potential.

The Inflation Reduction Act opens up $369 billion for climate and clean-energy programs, the “most aggressive action taken” to fight climate change, according to the White House. The majority of funding will be rolled out in tax credits—an estimated $216 billion, according to McKinsey. And the credits are quite generous for businesses: “Many of the tax incentives in the bill are direct pay, meaning that an entity can claim the full amount even if its tax liability is less than the credit,” according to McKinsey’s analysis.

Genova told CFO Brew that the business has been hoping and positioning for such tax credits, but there just hadn’t been much movement until recently. “You can imagine with a 30%–70% reduction in your cost, how many markets open up for you overnight, with the snap of a finger,” Genova said.

Now, Convergent Energy and Power is bringing on more personnel and resources, quite the contrast with other sectors such as tech, where companies are laying off people and downsizing. While Genova said it’s been a challenge to bulk up the company’s resources and employees, he said it’s certainly a “welcome one.”—KT

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