JPMorgan Chase & Co. and Morgan Stanley are among leading investment banks hesitating to provide a critical source of financing for US renewables projects.
The issue stems from a lack of clarity from the Trump administration over tax rules that restrict ties to China, according to people familiar with the matter.
The large banks are reluctant because they could face scrutiny under foreign investment rules tied to tax credits for renewables, according to the people, who asked not to be named because they aren’t authorized to speak publicly. Another big player, Bank of America Corp., meanwhile, is proceeding with select transactions, according to one of the people.
The potential financing disruption represents another major threat to the clean energy industry, which has been battered by US President Donald Trump’s aggressive campaign against it. His administration has issued a flurry of policies designed to stymie the build out of renewable power just as the US struggles to meet voracious demand from data centers running artificial intelligence applications.
Some developers are finding it challenging to find investors who are willing to take on the risk, said Antony Joyce, a renewable energy tax risk and insurance specialist with Marsh, an insurance broker.
“It’s starting to become disruptive for projects,” Joyce said. “It’s a big topic of conversation right now.”
Under a tax-and-spending bill passed by Republicans last year, companies seeking to claim tax credits are subject to limits based on financial ties to China, a major provider of components used in solar, wind and battery projects. Guidance expected soon from Treasury will define which projects can claim the tax credit. Until then, some banks are holding back, the people said.
Representatives of Bank of America, JPMorgan and Morgan Stanley declined to comment. The US Treasury Department didn’t immediately respond to a request for comment.
To obtain financing, renewables developers effectively sell portions of their projects’ tax credits, giving banks a passive ownership stake while also providing an opportunity to lower their own tax bills. This so-called tax equity can account for 30% to 70% of project costs, according to Norton Rose Fulbright, a law firm that specializes in such financing.
While the banks wait, the clock is ticking for wind and solar projects. Developers must start construction by July to qualify for the the credits — and tap into what was a $36.6 billion financing market last year, according to Crux, which offers a clean energy financing marketplace.
“Many projects rely on tax equity financing to most efficiently monetize the benefits of the tax credits they are entitled to,” said Katie Bays, lead researcher at Crux.
Guidance from Treasury could be issued as soon as this month, Roth Capital Partners analyst Phil Shen wrote in a note this week.
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