Q&A on transferable tax credits with tax, legal, & energy experts

May 3, 2023

We hosted a webinar on April 26 to discuss the growing market for transferable clean energy tax credits alongside tax, legal, and energy experts John Marciano, Co-Head of the Global Energy Practice at Allen & Overy; Sam Kamyans, Partner at Allen & Overy; Michael Orlando, Managing Director at KPMG; and Mike Carr, Partner at Boundary Stone Partners.

People joined from every corner of the market: developers, tax credit buyers, advisors, and intermediaries. The organizations represented on the call collectively represent tens of billions of transferable credit supply and demand.  

As John Marciano of Allen & Overy explained, tax experts have worked for years to create complex structures to transact credits through tax equity, but the Inflation Reduction Act will change the game by scaling the availability of credits and streamlining transactions for all parties. 

You can watch a full recording of the webinar below – and we’ve compiled some of the most frequently asked questions about this growing market and recapped how the panelists responded.

Note this is Crux's general summary of the webinar event and does not reflect tax advice or a summary from the panelists.

How big will this market get?

The Inflation Reduction Act (IRA) is projected to lead to ~$85B per year in tax attributes to be transacted by 2031. This volume represents a five-fold increase from today and would consume an estimated ~16% of all CBO-estimated corporate tax liabilities when the market reaches maturity.

Where will transferability be especially useful?

Early market participants are expected to include developers with projects for whom tax equity was suboptimal: storage, community solar, merchant projects – developers who value certainty and simplicity. Other project types beyond storage and generation, such as biofuels, will likely also use transferability as a primary financing mechanism.

Production tax credits (PTCs) are also anticipated to be an especially attractive candidate for transferability, given limited risks on valuation and basis, recapture, and the ability to sell them in closer-to-real time in a spot market.

How can transferability be paired with tax equity?

There are a number of situations where people are already transferring credits out of existing tax equity partnerships – for example, because new enhanced tax credits are increasing credit value beyond what existing tax equity partners could absorb. 

Transferability is also seen as a powerful fall back and escape valve. People are sizing tax equity commitments more conservatively, knowing that there is an emerging market to sell transferable credits as needed. 

Kamyans and Marciano explained that a hybrid transaction enables a sponsor to sell tax credits that are often not monetized in a traditional tax equity partnership structure.

When is guidance on transferability expected?

Treasury has indicated that guidance on transferable tax credits will be issued by Q2 2023.

How could the debt ceiling debate impact transferability?

Republican House members have proposed a bill that repeals parts of the Inflation Reduction Act and the newly-transferable tax credits. Panelists did not expect any major sections of IRA repeal to become law, as Republicans will have to negotiate a debt ceiling deal with Senate Democrats and President Biden. Additionally, repealing the IRA’s new transferability mechanism may be politically challenging for Congressional Republicans, as one analysis of the IRA tax credits found that traditionally Republican states will uniquely benefit due to their strong renewable energy potential and industrial activity.

What is expected pricing?

While pricing is still being set as the market begins to grow, current pricing ranges between 85-95¢ per dollar. Pricing depends on sponsor credit, insurance, technology category, and other factors. We’ll also be rolling out a pricing survey in the coming weeks to inform the conversation with real data as to how deals are being structured and at what prices.

How will Crux fit in and help all parties transact & manage credits?

Crux is designed to meet the needs of all parties in transferable tax credit transactions:

  • Clean energy developers of all sizes can maximize the value of their tax credits, tapping into a network of existing and new tax credit buyers and streamlining transactions through contract templates and workflow software.
  • Tax credit buyers can manage their tax liability and achieve their sustainability goals, discovering credits in our network, managing risk through diligence tools and insurance options, and reducing administrative overhead.
  • Banks, syndicators, and advisors can scale their tax syndication efficiently and profitably, tapping into this new industry by connecting developers & tax credit buyers through a branded portal, using purpose-built workflows to manage transactions, and unlocking blended tax equity & transferability structures and other innovative offerings.

Our network and tools will help all parties streamline the transaction process, access a large & liquid market, and reduce risk through our tools and advisory partners – facilitating more and cheaper transactions that achieve internal goals and accelerate the energy transition.

What’s ahead for Crux & the growing market?

We are currently working with buyers and sellers to transact credits as we build out a full suite of tools to grow the market and streamline transactions. We’re also rapidly expanding the number of partners and participants we work with – if you’re ready to get started, get in touch today.

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