Currents Podcast: Ep331 – Cost of Capital: 2026 Outlook
Podcast Host: Keith Martin (Norton Rose Fulbright)
Date: January 22, 2026
Episode Overview
In this annual tradition, Keith Martin moderates a roundtable discussion with top project finance professionals, exploring the state and outlook for cost of capital in 2026. The conversation features insights from leaders at Bank of America, JP Morgan, Aptera Infrastructure Capital, and MUFG, focusing on the evolving landscape of tax equity, debt markets, and policy changes impacting the energy and infrastructure sectors.
Key Panelists
- Jack Kargis – Head of Originations, Tax Equity Desk, Bank of America
- Rubio Song – Managing Director & Head of Energy Investments, JP Morgan
- Ralph Cho – Co-CEO, Aptera Infrastructure Capital
- Beth Waters – Managing Director, Project Finance Americas, MUFG
Table of Contents
- Tax Equity and Tax Credit Markets
- Trends in Debt Markets
- Effects of Policy Changes
- Noteworthy Quotes and Memorable Moments
- Summary of Notable Trends for 2026
Tax Equity and Tax Credit Markets (03:01–29:35)
Market Size & Structure
- 2025 total market volume: $45–50 billion (03:01)
- Includes wind, solar, battery, and direct credit transfer (TCT) markets.
- 10–15 billion of that is from newer, opaque credit transfer sectors.
- “That put the total tax equity and the tax credit transfer market size at 45 to 50 billion last year.” – Rubio Song (03:12)
- Approximately a 10% YoY increase. (04:21)
Deal Types & Market Fragmentation
- Five monetization strategies: (00:50)
- Partnership flips
- Hybrids (tax equity + tax credit sales)
- Preferred equity partnerships
- Straight tax credit sales
- Sale-leasebacks (making a comeback)
- Hybrid structures are taking over, traditional tax equity is shrinking:
- “It is very hard... to put a fine number on any of these statistics anymore because of the presence of the various transaction types..." – Jack Kargis (05:14)
- Hybrids likely accounted for the majority in 2025. (06:07)
Technology Mix
- Breakdown: about 1/3 wind, 2/3 solar and storage (04:42)
- Solar's dominance driven by easier deployment and policy environment
- Wind continues, but faces policy headwinds (06:07)
Non-Traditional Credits
- Growing interest in credits for standalone storage, advanced manufacturing, clean hydrogen (45V), carbon capture (45Q), but market for 45V hydrogen deals remains nascent. (07:28–07:50)
Pipeline & Momentum
- 2025 was “very busy,” with $7bn executed by JP Morgan alone (08:55)
- 2026 outlook: strong, extending into 2027, due to project timelines and pipelines (09:16)
Start of Construction Benchmarks
- Developers rushing to start construction before July 4, 2026 to lock in tax credits
- Start-of-construction metrics focus on substantial, project-specific work on major equipment (14:40–16:00)
- “There are no bright lines in the law and so we don’t draw bright lines. We do it on facts and circumstances.” – Jack Kargis (15:33)
Cost of Tax Equity
- No single headline “cost of capital” due to mix of deal structures (17:37)
- ITC market much tighter than PTC – more projects seeking ITC strain available tax equity supply (17:37–18:56)
- 80% of projects electing ITC; hybrid/preferred equity deals growing
- Capital Stack: Tax equity % is settling around 45% for new projects (12:53)
Guidance & Regulatory Uncertainty
- Market is anxious for Treasury guidance on technology-neutral credits and Foreign Entity of Concern (FIAC) rules (11:32, 23:38)
- Key risk: the need to comply with new restrictions on Chinese equipment / IP.
- Risk allocation on FIAC is unresolved. Industry wants clarity, rather than simply pushing risk to developers (23:38–24:43)
Accounting Changes: PAM vs. HLBV
- Increasing adoption of proportional amortization method (PAM) in tax equity accounting
- May be net positive for developers: less cash going to tax equity investor, less investor control during ops (25:47–27:33)
Emerging Trends
- “Vanilla tax equity” has given way to “31 flavors” of structures due to bespoke deals, electrification trends, data center growth, and AI demand (27:57)
- Major tech companies entering as direct players (e.g., Google buying Intersect Power) (29:14)
Trends in Debt Markets (32:02–55:38)
Project Finance Debt Volumes
- 2025 North American project finance volume: ~$260 billion (32:02)
- Represents a 41% YoY increase, highest in a decade
- Global project finance volume: Over $500 billion
Lender Landscape & Liquidity
- Over 100 infrastructure lenders, including new entrants (33:47)
- Market “super deep” in liquidity; heavy competition for assets leads to tightening spreads (34:23)
Impact of Trump Administration Policies
- Offshore wind hardest hit; banks generally not financing (36:21)
- Sourcing challenges for panels to avoid FIAC/Chinese content (36:21)
- Interest rate context:
- Fed rate dropped 75bps last year, but 20-year swap rate (project finance benchmark) unchanged at ~4.1% (37:20)
- Expectations are for slight declines in swap rates in 2026.
New Facility Structures
- Pre-NTP and borrowing base facilities:
- Three main structures: Mainstream pre-NTP (wholesale, DSCR-backed), borrowing base (against late-stage development assets, 50–60% advance), and high-risk “gambling” facilities (6–8% pricing). (38:04–41:01)
- Syndicated facilities widespread, efficient cost of capital down ~350–400bps for “mainstream” pre-NTP.
Construction Loan Advance Rates
- Can reach 90%, sometimes 95% for top clients, on total construction costs with construction plus tax equity or tax credit bridge loan (41:12–44:27)
Tax Credit Bridge Loans
- Committed/covered: 98% advance, ~150bps
- Naked/uncommitted: 75% (ITC), net ~67.5%; pricing ~225bps or more. (41:51–43:34)
Debt Service Coverage Ratios
- Middle-of-the-road benchmarks:
- Solar: P50 at 1.25–1.30x
- Wind: P50 at 1.35–1.40x
- Storage: 1.15–1.20x
- Merchant exposure sharply reduces financeability (44:51–46:58)
Data Centers – The Hot New Asset Class
- Massive expansion underway; shifts in lender risk appetite, especially for tenants like CoreWeave and Oracle (47:48–50:11)
- Data centers with hyperscale contracts can attract aggressive structures (DSCR down to 1.05x on portfolios)
Current Spreads
- Construction Debt: Standard “clean deals” at 150bps, outliers as low as 125–137.5bps, higher for complex/risky deals (50:20–50:54)
- Permanent Debt: 162.5–187.5bps, with merchant risk driving up margins up to 50bps more
- Spreads have slightly tightened (~1/8) over previous year, attributed to intense competition (51:18–51:46)
Other Trends & Sector Observations
- Data centers are driving integration of power + capacity financing
- High due diligence and delays due to FIAC, tariffs, and equipment sourcing issues
- Pre-NTP facility demand high, but requires expertise and lender appetite
- Back-leverage deals, fair market value step-ups, and creative structures proliferate
- Belo market (private credit) offering higher leverage, refi opportunities especially on gas projects
- Competition for “infra talent” remains fierce; human capital shortage noted (53:43–55:52)
Effects of Policy Changes (35:16–37:22)
- Tariffs and FIAC rules are driving due diligence burdens, equipment sourcing adjustments, and shrinkage of Chinese bank participation (36:21)
- Freeze on federal permits has delayed or discouraged offshore wind; banks have largely left this subsector, but other sectors in project finance remain healthy, supported by abundant liquidity
- Interest rate volatility: Despite Fed rate cuts, swap rates (used for pricing project finance debt) have been largely steady. (37:20)
- Immigration policy: Mass deportations contributing to a construction labor shortage and cost inflation
Noteworthy Quotes and Memorable Moments
-
On innovation in deal-making:
“Now it’s more like... to continue the ice cream analogy, 31 flavors of different types of transactions.”
— Jack Kargis (27:57) -
On supply/demand for credit buyers:
“The size of these projects, the size of the ITC that require many more buyers to come into the market. … What we call this: bring your own buyer model and that will serve the industry well.”
— Rubio Song (30:44) -
On working conditions for deal professionals:
“...reported this, their the end of 2025 as their busiest year end ever in terms of projects, dollars raised, et cetera… Some of the sponsors and also the third party providers such as the engineering firms, no, law firms and financial advisors were severely stretched.”
— Jack Kargis (09:40) -
On lenders’ competition and spread tightening:
“I don’t know why you guys are beating each other up like that. I guess ultimately it’s good for all the borrowers…”
— Ralph Cho (51:40) -
On future guidance needs:
“It would be much better for our sponsors in particular if we can all have a clarified view as to what that risk is [re: FIAC].”
— Jack Kargis (24:43)
Summary of Notable Trends for 2026
-
Tax equity market scaling and fragmenting:
- Larger volumes, more bespoke structures, increasing shift toward hybrid models and credit transfers
- The entry of tech majors may reshape tax equity availability and create new models
-
Debt market “super-cycle”:
- Surging volumes; hyper-competitive, with capital chasing deals and spread compression as a result
- Increasing number and diversity of lenders (banks, non-banks, private credit)
-
Policy, regulation, and geopolitical risk loom large:
- Intense concern and focus on compliance with FIAC rules and tariff changes
- Statutory and regulatory uncertainty continue to be bottlenecks for new project starts
-
Data centers as a primary growth engine:
- Massive investment and evolving debt structures as demand for power and infrastructure skyrockets
- Innovations in combined data/power deals and behind-the-meter generation
-
Human capital and operational strain:
- Market professionals, from sponsors to legal and engineering teams, are stretched as deal flow and complexity increase
- AI adoption seen as a likely necessity for workload management
-
Infrastructure innovation:
- Renewables, gas, storage, and digital assets continue to blend, with creative financings and tech adoption
- Complex, one-off deal structures are now the rule rather than the exception