Biden’s infrastructure plans could boost clean energy deals

United States: Biden’s infrastructure plans could boost clean energy deals

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On March 31, 2021, President Biden proposed the United States Jobs Plan (“Biden’s Plan I”), a $ 2.3 trillion infrastructure plan to invest in roads, transportation, water, broadband and clean energy. In response, on April 22, 2021, Republican lawmakers unveiled a $ 568 billion roadmap (“the Republican plan”) that focuses exclusively on traditional infrastructure. Most recently, on April 28, 2021, President Biden announced the US $ 1.8 trillion plan for families (“Biden’s Plan II”), which does not focus on tangible infrastructure but contains proposals for increases. taxes to pay for both Biden’s Plan I and Biden’s Plan II (together, the “Plans”). The investment contemplated in the plans is frequently cited for its potential to increase M&A activity in the clean energy sector, especially given President Biden’s focus on clean energy as central to its climate change objectives. Even before enactment, the prospect of the plans themselves can already have an impact.

While the Republican plan focuses only on traditional infrastructure, Biden’s Plan I targets areas where investment is likely to have an environmental impact. For example, Biden’s Plan I will invest an additional $ 165 billion in rail and transit, while the Republican plan will cut the current budget by $ 3 billion. In addition, Biden’s Plan I includes $ 100 billion to upgrade power grids, $ 300 billion to increase manufacturing and supply chain capacity, $ 16 billion to clean up wells and mines. of oil and gas, $ 174 billion to invest in electric vehicles and related infrastructure, $ 46 billion in supply. clean energy manufacturing and investing in carbon capture to help decarbonise power plants, cement and steel manufacturing.

However, the potential of Biden’s heavy investment in Plan I in clean energy may not be the only relevant driver of clean energy M&A deals this year. On the contrary, the uncertainty surrounding how the plans will be financed, the types of tax hikes involved, as well as the effects of the plans on oil prices could impact M&A activity. To pay for Biden’s Plan I, President Biden is proposing to raise the corporate tax rate to 28% and eliminate $ 35 billion in fossil fuel tax subsidies. Biden’s Plan II would be funded by tax increases, including the taxation of capital gains as ordinary income for high-income earners. These potential tax increases are likely to play an important role in contributing to the recent surge in clean energy mergers and acquisitions.

In addition, these plans come at the same time as a historic change in the financing of renewable projects. In the past, much of the economy of revolving transactions was in the form of federal tax credits (both production tax credits for a ten-year period and tax credits for l investment at the time of commissioning of the asset). Monetizing these credits required attracting tax equity investors, which involved complex structures and limits for developers. However, it is expected that these tax credits will gradually disappear and the plans do not propose to extend these tax credits or to stop their elimination. Instead, as noted above, they are focusing on infrastructure to support renewable energy projects. Ironically, tax increases in plans can increase the demand for reduced tax credits and accelerated depreciation (which is more valuable if investors are faced with a higher tax rate). The impact on developers and funding makes today’s market even more ripe for mergers and acquisitions.

Whether the plans will pass in their current form depends on ongoing negotiations in Congress. Either way, speculation about the promulgation of the plans and their ensuing tax consequences could also spur a surge in activity in the remainder of this predicted record year for clean energy mergers and acquisitions.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought on your particular situation.

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