EDPR Exec discusses storage growth and the death of tax abatements in Texas

In an interview with NPM, EDPR’s lead for new development initiatives in the central region David Neely discussed the company’s outlook on storage growth as well as the death of Texas’ tax abatement program and the impact it, along with other headwinds, is having on development in the state.

A number of hearings have taken place in recent months on tax abatement adjustments in ERCOT from projects that filed for Chapter 313 tax abatement through a now dormant tax code that allowed developers to limit the appraised value of owned or leased properties for school district maintenance and operation tax requirements. The program was widely used by renewable project developers until its demise in January 2023.

Earlier this summer, NPM reported on Nexus Renewables’ filing seeking an adjustment for its Goody Solar project in Lamar County. Then, last month, NPM obtained a Milam County agenda that indicated projects from developers including EDPR, NextEra and Pine Gate were also seeking adjustment.

But rather than a new development or policy change causing developers to now file for adjustments, Neely says it is actually a reflection of the late-2022 run on the program in its final hours.

“When the expiration schedule for Chapter 313 came down, there were a lot of projects where we proceeded with the 313 filing early just to secure it,” Neely said. “Obviously, with the nature of project development, your footprint can change, zoning areas and parcels evolve, and scheduled shift, so my assumption is a lot of folks did the same thing where they secured the 313 just to have it and now you are seeing natural shifts as projects evolve. The sooner you secure a tax abatement, the more adjustments are probably going to have to be made.”

Interestingly, despite the demand for Chapter 313 among project developers, particularly in its final days, Neely says its end for renewable project development has not resulted in the decrease in development in the state that state leaders may have predicted.

“The end of Chapter 313 is impactful, but it was done evenly across the board,” Neely said. “We certainly would’ve liked to retain the program because it was definitely beneficial to development and the communities we work with, but I think it became pretty understood this was going away and so economics adjusted evenly.”

That said, Neely does say he has seen the economics of project development in ERCOT tighten post-Chapter 313, though he attributes that more to ballooning project timelines than the end of tax abatements for renewables.

“A few years ago, ERCOT was a market where you could move quicker than others, which led to a lot of entrants even if the returns weren’t the best bang for the buck,” Neely said.

Despite this, however, Neely says EDPR’s own targets have not seen much of a change.

“We may be slightly more bearish [on ERCOT], but just ever so slightly,” Neely said.

Storage Prospects

In particular, Neely says the company might see a “slight ramp up” of storage development in the state as the “fundamentals shift.” Outside of ERCOT, though, he says storage growth remains uneven, even after the passage of the IRA and its standalone storage ITC.

“We’re not seeing a storage-specific boost post-IRA,” Neely said. “To me, it’s more about the technology improving and the utility drive for it as renewables ramp up in certain markets.”

While Neely says CAISO continues to be a leader for storage, he says other markets remain more disparate in terms of storage interest from offtakers. While he says MISO is “ahead of the others” in the Midwest thanks to the ISO’s “organization and maturity in their review of how to value and utilize storage within the system,” he still says growth remains uneven depending on utility interest.

“You see certain markets and utilities more mature in their review and research of how to utilize battery storage better,” Neely said. “There markets are typically a bit more aggressive to move forward with storage to replace conventional generation while others take a more conservative approach where they’re still hanging onto fossil generation even as this technology proves itself out.”

Moving forward, Neely says he expects EDPR to put more of a focus on hybrid projects rather than standalone storage, both at existing and future sites.

“As storage matures, the value of hybridizing is increasing,” Neely said. “We’ve got some potential to utilize our existing fleet and POI values to replace, repower and hybridize.”

*This story was originally published exclusively for NPM subscribers last month.

NPM US (New Project Media) is a leading data, intelligence and events company dedicated to providing origination led coverage of the renewable energy market for the development, finance, advisory & corporate community.

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