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by David Riester
The current administration ostensibly wants to let artificial intelligence rip - crush the PRC in the AI arms race, let the economy fly, and enjoy all sorts of geopolitical/economic advantages by being king of the AI hill. The U.S. Department of Energy (DOE) made this position abundantly clear in the 10/23 letter directing Federal Energy Regulatory Commission to cut all sorts of interconnection red tape for data centers, which included rather a lot of bluster about America pulling out all the stops to "win" the AI thing.
This is all well and good, but is really hard to take seriously when the executive branch is simultaneously, knowingly withholding FEOC guidance.
The causality chain is perfectly clear:
1. AI dominance is a function of data centers.
2. Data centers are a function of power.
3. Near term power options are mostly solar BESS (many wish it were different, I know. It's not, though).
4. Those solar/storage projects don't start construction until a capital stack equal to the total construction costs is fully secured.
5. Part of those capital stacks are tax investments related to the ITC (that will change with OBBB, but for now that's just how it is; accept it).
6. Tax investors don't close until they are extremely confident they will be eligible to receive the tax credit.
7. To be confident that you will receive the tax credit, you have to know what the rules ("regs") are.
8. One of the big new rules is FEOC, and the regs aren't out.
9. Therefore, the tax equity market is paralyzed.
As such, our quest for AI dominance is in a holding pattern. If that is not our government's preferred state of play, then get the treasury to put out the regs/guidance immediately
Title VII of OBBB (e.g., §§70512–70513) overlays FEOC restrictions on the tech-neutral credits in IRC §§45Y and 48E and extends similar concepts to §§45X, 45Q, 45U and 45Z, while adding a new “prohibited foreign entity” definition in §7701(a)(51), and a "foreign influenced entity" concept with aggressive look-through rules. And nobody knows what the "look-back" rules are going to say. Insurance companies aren't covering the risk.
The result: term sheets are being “soft-paused,” and sponsors are being told to come back “after guidance” – which is another way of saying the market is not functioning for new-build solar, storage and wind.
Why? You may recall on July 2 that certain freedom people or whatever and the petroleum lobby wrangled a promise that in spite of the sunsetting/safe-harboring provisions our legislative branch deemed necessary to pass the OBBB, EOs and other instruments of legislation circumvention (see: DOI letter ordering Burgum to kill new power plants) would ensure a cleanenergy killshot. I started hearing about plans to slow-play FEOC guidance in the days that followed.
Surely, clearly the executive branch's priorities have evolved since - and so too should the instructions to treasury.
Jam out some FEOC guidance and let us build some power plants please.
