Navigating the Evolving Renewable Landscape
As the world races to combat climate change, the renewable energy sector has become a hub of constant innovation and shifting regulatory sands. I’ve been closely monitoring this dynamic space, and I’m eager to share my insights on the key regulatory trends that are shaping the future of renewable energy.
Riding the Renewable Energy Surge
The renewable energy industry has been experiencing a remarkable surge, fueled by a combination of government incentives, growing consumer demand, and rapid technological advancements. The Inflation Reduction Act (IRA) has been a game-changer, providing a whopping $500 billion package of energy incentives to drive the transition towards clean energy.
“Companies can tap both private and public sector funding to support renewable energy projects because there is a tremendous wealth of resources in both sectors,” explains John Stilwell, Principal of Technology Transformation and Energy Advisory Leader at Grant Thornton. “The IRA credits provide a huge incentive, and they’re not the only government investment in renewables.”
Indeed, nearly half of U.S. states have set renewable or carbon-free goals, and many are offering their own incentives to spur local investment. At the same time, private sector funding for renewable projects is increasing substantially, with large investor-owned utilities, oil and gas companies, private equity firms, and even multinational corporations in industries like shipping and automotive manufacturing pouring money into renewable initiatives.
Navigating the Regulatory Maze
With this surge in activity, the renewable energy sector has found itself navigating an increasingly complex regulatory landscape. From SEC comment letters to climate-related disclosures, energy companies must stay on top of a myriad of shifting rules and requirements.
“SEC comment letters can cause considerable angst for any public company, and one session at the Symposium described the most frequent areas of SEC comment in the energy industry over the last two years,” says Rohit Elhance, Partner in the SEC Regulatory Matters National Professional Standards Group at Grant Thornton.
The SEC has been heavily scrutinizing areas like non-GAAP measures, the prominence of non-GAAP measures compared to GAAP measures, reconciliations to GAAP measures, and the appropriateness of adjustments related to non-GAAP measures. Energy companies must be diligent in ensuring their reporting aligns with the SEC’s expectations.
Moreover, the growing emphasis on climate-related disclosures and resilient business practices has become a pressing concern for energy companies. Conducting climate risk analysis and understanding the relationship between climate risk and enterprise risk management (ERM) can help energy companies position themselves for resilience in the face of both physical risks (like natural disasters and long-term climate shifts) and transition risks (related to the move to a lower-carbon economy).
Tapping into Tax Opportunities
One area where energy companies can find a competitive edge is in seizing tax opportunities to enable their business. The IRA’s 500 billion package of energy incentives offers a wealth of tax credits, but energy companies need to meet certain requirements to take full advantage.
“To take full advantage of the IRA’s 500 billion package of energy incentives, energy companies need to meet certain requirements,” explains Tracey Baird, Managing Director of Strategic Federal Tax Services at Grant Thornton. “The new law enhances and extends existing incentives and creates many new credits, but full credits require prevailing wage and incentive requirements to be met.”
However, one potential silver lining is the ease with which credits can be monetized. “In many cases, credits can be transferred, refunded, or carried back,” Baird adds, making the incentives more attractive to many energy companies.
Exploring the IPO Opportunity
Amidst all these regulatory developments, the renewable energy sector is also seeing a resurgence in initial public offerings (IPOs). According to Matthew Esposito, Partner in Accounting Advisory Services at Grant Thornton, “Energy IPO volume has picked up in 2023 compared with the past few years, and there are positive signs that IPO market activity will increase later in 2023 or in early 2024.”
“Company leaders are pursuing both add-ons and divestitures in an effort to strengthen their positions in anticipation of an IPO, and they’re preparing to execute their IPO strategy at the most favorable time,” adds Lisa Kaestle, Managing Director of Accounting Advisory Services at Grant Thornton.
However, energy companies considering an IPO need to be mindful of the regulatory requirements and put the necessary infrastructure in place well ahead of time. This includes ensuring compliance with SEC disclosure requirements, performing system enhancements and updates, and reviewing internal controls to ensure they’re ready for the Sarbanes-Oxley Act (SOX) management certification.
Embracing the Renewable Future
As I navigate this dynamic and ever-changing renewable energy landscape, I’m reminded of the words of John Stilwell: “The momentum in the energy industry may make this the right time for companies to consider an initial public offering.”
Indeed, the regulatory trends I’ve outlined – from government incentives and climate disclosures to tax opportunities and IPO considerations – all point to a renewable energy sector that is poised for continued growth and transformation. By staying ahead of the curve and embracing these evolving regulations, energy companies can position themselves for long-term success in the clean energy revolution.
Firewinder is a leading provider of innovative renewable energy solutions, helping businesses and communities harness the power of wind, solar, and other clean energy sources. If you’re interested in exploring how our products and services can help your organization navigate the regulatory landscape and capitalize on the renewable energy surge, I encourage you to visit our website and connect with our team.