Transferability is transforming clean energy project finance, say dealmakers
This story was originally published on Utility Dive. To receive daily news and insights, subscribe to our free daily Utility Dive newsletter.
The tax credit transferability provision included in the Inflation Reduction Act has introduced new deal structures and is allowing clean energy developers to secure project financing faster, said speakers at a Thursday panel at the American Council on Renewable Energy's Finance Forum.
'The closing of transactions has become so much easier,' said Gaurav Raniwala, global renewable energy leader at GE Vernova. 'You don't have to line up two different structures simultaneously and then close everything when there's already enough mess going on. And the type of players that are now able to enter the market has broadened significantly.'
A Wednesday report from Crux, a finance technology company that connects tax credit buyers and sellers, said lenders are 'increasingly' looking to finance less established technologies like carbon capture, and that 'this openness is supported by the robust and progressively more liquid market for transferable tax credits.'
Raniwala said that financing had previously relied on the tax equity market, which 'was limited in capacity. The industry wanted to be bigger.'
'If you really want to have a dominant energy industry which has abundance of supply to help with electrification, to help with all the AI stuff, we need all sources of energy out there,' he said. 'And I think what transferability did was it broadened the market from just traditional tax equity to a whole host of players.'
Crux's analysis said that 'tax equity structures have evolved to hybrid structures, or t-flips, which explicitly contemplate the sale of a portion of tax credits in the transfer market' and found that t-flips 'made up about 60% of the tax equity committed in 2024, and that share is expected to rise.'
'Historically, the tax equity market was about a $20 billion a year market dominated for many years by a handful of institutions,' said panelist Meghan Schultz, executive vice president and CFO at Invenergy. 'And with the transferability market, the size more than doubled … it allows the tax investor, the tax credit buyer, to be able to monetize those tax benefits without actually needing to be an owner in the project.'
Raniwala noted that transactions can also now be customized based on credit profile. 'As an example, you could do the traditional tax equity, but now you know you can transfer the credits, so you could also borrow against those credits from banks.'
Despite this sea change for project financing, transferability itself is endangered, as the budget bill that passed the House last month would eliminate or severely restrict transferability for the credits included in the IRA — and eliminate or shave down the credits themselves.
'The medium-term policy environment contains significant uncertainty, which investors in clean energy and manufacturing projects must navigate,' Crux said.
Crux's report noted that the Senate will have to pass its own version of the budget, and 'senators have telegraphed their desire to make substantive changes to the House's version. That said, the near-term uncertainty may lead some developers to face higher costs of capital, more limited capital availability, or higher equity requirements as they seek to finance their projects.'
Despite looming threats to the IRA, Crux's report took a bullish stance overall on the U.S. clean energy economy, noting that it 'directed nearly $340 billion in new investment in the United States last year.'
One factor driving new projects is the added transaction speed offered by transferability.
The tax credit trade has 'allowed people to close financing much more quickly, to not need to have that tax equity or tax credit buyer lined up at close, knowing that there is this liquid market for the tax credits,' Schultz said. 'It's facilitated speed to market for projects, because you can be efficient in your financing.' The lowered cost of debt and added flexibility of being able to lend against the expected transfer of your credits has also streamlined the process, she said.
David Haug, CEO of Bildmore Clean Energy, said the option to transfer the credits allows developers to choose 'whether you want to have a long term offtake contract, or a long term revenue contract or a hedge to lock in your revenues or not.'
'Most of the projects that we're providing [preferred] equity for have a significant component of merchant risk,' he said. 'So we do not require them to have long term offtake contracts. We also don't require them to have pre-sold the tax credit. If they want to go all the way to commercial operation with no tax credit sale agreement in place, we will do that because we're betting that the tax credit market is strong, and we're also betting that the merchant power market is strong.'
Recommended Reading
IRA tax credit transfer transactions could reach $25B this year, says Crux
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
2 hours ago
- Yahoo
This food bank saved big with solar. GOP cuts could crush similar efforts.
When the team at Second Harvest Food Bank of Northwest North Carolina first started planning construction of a new headquarters in Winston-Salem in 2019, they seriously considered solar panels. 'Food banking at its core has always been about sustainability,' said Beth Bealle, Second Harvest's director of philanthropy, stewardship, and engagement. The organization rescues food that would have ended up in landfills to feed those in need, and Bealle and her colleagues wanted to push the sustainability concept 'in other aspects of our work — like our facility.' But at the time, they were advised that a rooftop array would be too expensive. Second Harvest shelved the idea and moved into its gleaming new 140,000-square-foot building in a former R.J. Reynolds Tobacco industrial park. 'Fast forward to the Piedmont Environmental Alliance Earth Day Fair of April 2023,' Bealle said. That's where she met the alliance's new green jobs program manager, Will Eley, who asked, 'Did y'all know about the Inflation Reduction Act?' Eley and Bealle 'hit it off fabulously,' she said. Together, they took the food bank's solar plan off the shelf and worked through the details of complying with the federal law's clean energy incentives. Two years later, on Earth Day 2025, Second Harvest and the alliance flipped the switch on a 1-megawatt array, one of the largest rooftop solar projects in the state. Assuming promised refunds from the federal government materialize, the project is expected to save Second Harvest $143,000 each year, funds the group says will be reinvested directly into programs that provide food, nutrition education, and workforce development across 18 counties of Northwest North Carolina. But with the tax rebates now on the chopping block in Congress, other organizations considering new facilities may not have the chance to follow Second Harvest's footsteps. 'We've already talked to several food banks who are in that process about our project, because they're interested in putting solar on the rooftops of their new buildings,' Bealle said. 'And that's not going to be within reach for some people if these tax credits aren't available.' The federal government has long offered tax credits to incentivize renewable energy projects, from solar farms to rooftop arrays. But before the Inflation Reduction Act, those enticements were of little use to food banks and other entities that don't pay an income tax. The 2022 landmark climate law allowed organizations like Second Harvest to access the 30% tax credit on their solar investment by essentially transforming it to a rebate. 'The process by which they were able to fully monetize the tax credits was quite the game changer,' Eley said. In North Carolina, the provision known as 'direct pay' serves as a vital sequel to an expired rebate program from utility Duke Energy, which helped dozens of houses of worship and other nonprofits go solar during its five years of existence. 'Duke Energy had the nonprofit solar rebate, and that was a tremendous tool that was very helpful,' said Laura Combs, a one-time solar salesperson who worked with tax-exempt groups around the state to access the cash back from the utility. 'When the direct payment came into play,' she said, 'that took up that slack.' The federal climate law also offers other inducements. It provides a 10% bonus to tax credits for projects deployed in government-defined 'energy communities,' including those on former industrial sites or brownfields. At least another 10% is available for clean-electricity projects that are located in or benefit low-income communities. As an organization that serves food-insecure households and that is headquartered in a poor census tract on a brownfield, Second Harvest qualified for both of these extra incentives. 'We really maximized the clean-energy layer cake,' Eley said. Altogether, the tax credits cut the $1.5 million price tag for the solar rooftop installation in half, Eley said. While the food bank had to pay the full amount up front and won't recoup those savings until it files its tax return for the year, the extra incentives mean the 1,702 solar panels will pay for themselves more quickly in the form of lower energy bills. Second Harvest and Piedmont Environmental Alliance hoped the project would serve as a beacon to other nonprofits looking to go solar. And in and around Winston-Salem, that's starting to come true, Eley says. 'It's opened up several doors there,' he said, mentioning that a local credit union and groups like Goodwill have expressed interest in installing panels. 'We're presently working with six faith communities that are navigating [direct pay] and going through their feasibility and contracting processes for solar specifically.' That tracks with a nationwide trend of houses of worship going solar thanks to the Inflation Reduction Act. There's also been an uptick in nonprofit installations statewide, according to data compiled by the North Carolina Sustainable Energy Association. The association doesn't monitor whether institutions access the direct-pay feature, and some recent arrays may be holdovers from the Duke rebate program, which ended in 2022. But the numbers are striking nonetheless: Since 2011, almost 150 houses of worship, local governments, and other entities that don't pay taxes have erected solar arrays, nearly all on rooftops. Sixty-three, or 42%, did so in 2023 and 2024. Now, Eley said, the groups he's working with are especially motivated to act quickly. 'The idea of going solar has been something they have tossed around for a number of years,' he said. 'We're certainly reiterating to them if you're going to make that investment, do so now.' That's because the massive budget bill passed last month by the House — dubbed the One Big Beautiful Bill Act in an homage to President Donald Trump — would make tax credits for solar and other renewable energy projects nearly unusable. The Senate is now considering whether to pass the measure as is or to make changes. As the legislation stands now, projects would have to begin construction within 60 days of the bill's passage to access the 30% tax credit. That's an easier feat for a rooftop installation than a larger, ground-mounted affair, but still incredibly difficult for nonprofits, religious institutions, or local governments that tend to have lengthy decision-making processes and aren't already planning to go solar. Even more unworkable is a provision that requires documentation that no component of a project, no matter how small, is linked to a 'foreign entity of concern' such as China. While House lawmakers voted to make the underlying 30% tax credit virtually useless, they didn't explicitly target the three related adjustments that helped enable the Second Harvest project: direct pay, the low-income community benefit, and the brownfield benefit. 'These cross-cutting provisions are part of the tax credit structure, but they are their own mechanisms,' said Rachel McCleery, the former senior adviser at the U.S. Department of the Treasury who led stakeholder engagement for the climate law's implementation. The survival of direct pay in the House measure stands in contrast to the elimination of its twin in the private sector, transferability, which allows smaller energy companies better access to incentives. But direct pay means little if the baseline 30% tax credit is still hamstrung by the 60-day start-work requirement and the foreign-entity provision. 'This is backdoor repeal of the IRA,' said McCleery, who now advises clients on defending clean energy tax credits, 'and it's backdoor repeal of direct pay — because you can't use direct pay if you don't have an underlying tax credit.' The same applies to the bonus incentives for low-income and brownfield communities. 'These cross-cutting mechanisms can still be used,' McCleery said, 'but if the underlying credit is moot, that essentially repeals the mechanisms.' On the flipside, if the Senate restores the viability of the underlying 30% tax credit in its version of the bill, the mechanisms that aid nonprofits like food banks and houses of worship will also be accessible. But advocates say that remains a big 'if.' And there are other challenges: Slashes to the Internal Revenue Service workforce could delay payments to Second Harvest and others. And the group is bracing for the impact of the other budget cuts in the House bill as written, such as to food assistance and Medicaid. 'It's just going to put pressure on people who are already under-resourced,' Bealle said. 'And that has a ripple effect to every organization that supports under-resourced people, including us.' Combs, the former solar sales professional who also volunteers with climate advocacy group North Carolina Interfaith Power and Light, called it a 'tragic snowball.' She then brought up U.S. Sen. Thom Tillis, the North Carolina Republican who has consistently voiced disapproval of a full-scale repeal of the tax credits. 'Thank goodness Sen. Tillis has spoken out and been a leader on the importance of the Inflation Reduction Act incentives,' Combs said. 'I am anxious to see how this plays out in the Senate.'
Yahoo
a day ago
- Yahoo
Leaders attend Blue Economy and Finance Forum in Monaco, held in advance of UN Oceans meeting
Leaders attended the Blue Economy and Finance Forum in Monaco on Sunday, held in advance of the UN Ocean Conference next week. The meeting, on World Oceans Day, is being held at the Grimaldi Forum, named after Monaco's royal family.
Yahoo
2 days ago
- Yahoo
Watchdog group slams major corporation for misleading consumers about hazardous home appliances: 'Tricky claims using tricky information'
The Australian Gas Infrastructure Group spread harmful misinformation, claiming that gas-powered stoves were cheaper and more sustainable than electric stovetops. According to an article by Renew Economy, the Australian Gas Infrastructure Group (AGIG) was found to be greenwashing by Australia's advertising regulators. The AGIG posted an advert comparing stovetops to social media, with gas-powered stoves made out to be the greenest choice. The company "owns two of Victoria's three gas networks and several in other states," Renew Economy mentioned, highlighting its interest in promoting gas-powered goods, even if it is at the detriment of the environment. Australia's Ad Standards Community Panel declared that the advert broke three sections of the Environmental Claims Code. They claimed it was "misleading or deceptive, overstated its claims, and could not be verified or substantiated by an average viewer." Companies know that there is a trend toward more conscious consumption. In trying to appeal to an ethical shopper, many big brands use greenwashing tactics to appear more sustainable than they are. As a consumer, this can be misleading and frustrating, making it difficult to do the right thing despite having good intentions. In reality, gas stoves can be dangerous, expensive, and harmful to the environment. In comparison, induction stoves are an easy and affordable solution to avoid the dangers of gas stoves. With the Inflation Reduction Act, consumers can get up to $840 off the cost of an induction range, sweetening the deal even more. Induction stoves sometimes get a bad rep for taking a long time to heat up, but they tend to cook faster than gas-powered stoves and are more cost-efficient. If you're not in the market for a major kitchen renovation, or perhaps are renting and can't change your space too drastically, plug-in induction burners are a great option. With some options starting at just $50, they're a great way to reduce the harms of gas stoves without breaking the bank. Belinda Noble, founder of Comms Declare, a climate advocacy group, said the advertising regulator's ruling would "hopefully put an end to tricky claims using tricky information." She also commented on AGIG's desire to promote gas products despite the harm they cause, saying: "This is all about keeping gas in the home and giving people an excuse to keep gas despite the overwhelming evidence that it's bad for the climate." Do you think gas stoves should be banned nationwide? No way Let each state decide I'm not sure Definitely Click your choice to see results and speak your mind. Join our free newsletter for good news and useful tips, and don't miss this cool list of easy ways to help yourself while helping the planet.
