Renewable Energy & Cleantech

On May 2, Schneider Electric’s Tax Credit Investment team hosted a “Tax Credit Transferability & Corporate Buyers” webinar attended by more than 250 commercial and industrial organizations. Subject matter experts Hans Royal, Senior Director, Renewable Energy & Carbon Advisory, and Emily Rose, Associate Director, Head of Renewable Energy Tax Credit Investing looked at tax credit investment for new entrants and ways to leverage tax credits as a mechanism to decarbonization.

The audience submitted nearly 40 questions that exceeded our 15-minute allotment. This blog series includes our team’s responses to those questions. We’ll post an installment of these over the upcoming month.

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Q. Is there a list of available renewable technologies that qualify for tax credits without having to read the entire IRA?

A. Yes. Here is the full list of transfer-eligible IRA tax credits:

• Renewable electricity production credit (45)​

• Carbon oxide sequestration credit(45Q)​

• Zero-emission nuclear power production credit (45U)​

• Clean hydrogen production credit (45V)​

• Advanced manufacturing production credit (45X) ​

• Clean electricity production credit (45Y)​

• Clean fuel production credit (45Z)​

• Energy credit (e.g., solar, wind, geothermal, etc.) (48).​

• Qualifying advanced energy project credit (48C)​

• Clean electricity investment credit (48E)

• Alternative fuel vehicle refueling property (30C)​

Here’s a link to a fact sheet on the IRS’ website.

Q. Typically, how much do buyers pay for the tax credit compared to the value of the tax credit?

A. Prices range based on a variety of factors, e.g., technology, size, sponsor/developer financial capacity, type of credit (PTC/ITC), adders, other project-specific risks, etc. but typically fall between $0.87 and $0.96 per dollar of credit.

Q. Is it possible today for a new renewable energy project to get a long-term fixed-price tax credit transfer commitment to support financing of the project (e.g., 10-yrs.)?

A. Yes, absolutely. Several Schneider Electric clients are actively evaluating tax credit commitments of up to 10 years, particularly for projects utilizing the production tax credit (PTC).

Q. How does tax credit transfer support additionality?

A. While formal definitions vary, the general concept of additionality is a specific action that plays a direct role in the completion of a new renewable energy project. As such, there are usually multiple entities that can claim additionality on an individual project: the developer, the energy/REC buyer, the project financiers (including tax credit investors), the equipment providers, the construction company, etc. It really takes a village. Investors can and should highlight the impact of their actions in helping provide liquidity to the project via purchasing its tax credits. 

Note: Additionality shouldn't be conflated with the concept of double-counting with regard to RECs/EACs where only the single entity owning/retiring the renewable energy certificate can claim the emissions reduction associated with that MWh of electricity. 

Q. Can developers solely use tax credit transfer as a critical portion of their capital stack or will tax equity always be needed?

A. Many developers are looking to transfers as the primary way to monetize the federal tax credits from their renewable energy projects. Tax equity will continue playing a prominent role in the market, but the supply of traditional tax equity may not scale as fast as the demand for tax credit monetization due to the complexity of the structure. To achieve the IRA-driven ambitious carbon reduction targets, estimates suggest clean energy tax credits will approach $100B annually in the coming decade with transfers making up 60-80% of that figure. 

Q. If the tax credit only becomes available once the renewable project comes online, does that mean the developer can only use the funds from selling their tax credit to build new additional projects after the first one?

A. While it is true investment tax credits (ITCs) are technically generated once a project is placed in service and production tax credits (PTCs) are generated as clean energy is produced, developers/sponsors often seek tax credit investment commitments months prior to commencing construction to secure the full project’s capital stack. Having a commitment from a tax credit investor is a crucial element in the development cycle of any utility-scale renewable energy project in the United States. And, when additionality is important, these transactions actually contribute directly to the completion of that project, not just some future unnamed asset.

Q. Would a change in US administration put any policy at risk related to tax credit investment? Is there urgency to invest sooner rather than later?

A. Many IRA provisions enjoy bipartisan support and support from many industries and businesses. While there is always "change in law" risk, and the possibility a new administration could attempt to repeal (only through Congress) or modify the IRA, such changes are considered unlikely due to legislative, economic, political, administrative, and legal hurdles. If parts of the law were amended, there would be a transition period. That said, for those interested in transacting on clean energy tax credits, it may make sense to enter the market soon to avoid the risk of future repeal.  

If you would like more information on these or related questions, the Tax Credit Investment team at Schneider Electric can help. Get in touch with us at TaxCreditInvestment@SE.com for a deeper dive into your organization’s opportunity through tax credit transfer.