The federal tax credit extension for wind and solar energy through 2022 should give the U.S. renewable energy sector a boost and will likely shape merger-and-acquisition activity for several years to come.

Last year, $329 billion was invested in clean energy, with $44.7 billion of that invested in the United States, according to Bloomberg New Energy Finance (BNEF).

Renewables have matured rapidly since 2014, with the M&A deal count rising 42 percent in 2015 from 2014, according to Deloitte and SNL Energy. Total renewable capacity in the United States rose 17 percent last year to nearly 19.7 gigawatts (GW), as renewable assets garnered more attention in the publicly traded markets and among large corporations, Deloitte said.

Solar was the most active subsector in 2015, with 115 M&A deals accounting for 8.3 GW, up from 61 deals and 4.1 GW in 2014. Wind added more capacity than solar (11.3 GW) in 48 deals, down from 54 deals (12.7 GW) in 2014, according to SNL Energy.

The National Renewable Energy Laboratory estimates that the tax credit extension for wind and solar will result in 48 to 53 GW of additional renewable power by 2020, compared to capacity if the credits had lapsed. BNEF estimates a similar amount of renewable energy capacity: 54 GW between 2017 and 2022 with the bulk of that (44 GW) coming from wind.

Strong fundamentals for renewable energy

While another tax credit extension in 2022 is unlikely, the good long-term news for renewables is that the cost to build wind and solar energy power continues to drop, making it more feasible to develop and more accessible to Main Street.

The retail industry alone has 4.5 billion square feet of rooftop space that could generate 62 GW of solar power, enough to power 7 million households, according to Environment America, which notes Walmart is already is a leading proponent for rooftop solar with 142 megawatts installed.

In addition, global interest in reducing carbon emissions, driven in part by the 2015 United Nations Climate Change Conference in Paris, will continue to stimulate interest in renewables. The conference negotiated the Paris Agreement, a global climate accord among 196 parties to limit global warming and reduce greenhouse gas emissions.

To be sure, 2015 ended on a very positive note with the tax credit extensions. BNEF notes that it marked the second straight year that renewable energy growth eclipsed fossil fuel growth.

This year, renewables are expected to account for about 73 percent of new energy capacity as utilities look to meet clean air objectives with more solar and wind energy and independent power producers extend their development pipeline. This should translate into robust M&A activity in the sector.

###