The Journey of Establishing Reunion: A Marketplace for Clean Energy Tax Credits
Read more about Reunion’s founding story.
Reunion officially opened its doors in December 2022, but my co-founder Billy Lee and I have laid the groundwork for this company over the last 15+ years of our respective careers.
Here’s the story of how we gained the confidence and the conviction to go all in and start Reunion.
Part 1: How Reunion’s founding team came together
Billy and I first met in late 2008 when I joined SunEdison, a leading solar development company. Billy had been one of the first employees at the company, and had already spearheaded some of the earliest solar transactions in the market. We quickly closed our first transaction together in 2009, when we sold a portfolio of solar energy projects in New Jersey to a first-time solar energy investor. Believe it or not, this was a very novel concept at the time!
We developed mutual respect while working together; Billy led a dozen-person project finance team that completed many of the earliest solar tax equity deals, with major banks such as Wells Fargo and JPMorgan. My team was successful in convincing the first US private equity firm to invest in a portfolio of solar energy projects, and brought many first-time investors to solar energy including bond and infrastructure investors.
Every solar financing was challenging back then, so we bonded over the many ways we had to use tenacity and creativity to get deals across the finish line.
Part 2: Achieving "founder-market fit"
After our work together in solar finance, we both started our own solar companies; Billy built out a solar tax equity financing company and partnered with investors such as D.E. Shaw. He later started a greenfield development company that developed utility-scale solar projects across the US. I started SunFarmer, a Y Combinator-backed solar energy company focused on developing countries that led the installation of 1,500+ solar energy projects in South Asia.
Billy and I joined forces in the summer of 2022 with the goal of starting a new company that would have a meaningful impact on climate. We quickly picked up a consulting contract from a California utility, while investigating several climate-related business ideas.
We kept coming back to the realization that we have a unique competitive advantage in renewable energy finance. Investors talk about "founder-market fit" - the unique insights and skills a team has to tackle a market opportunity. Billy and I have spent years driving real innovation in renewable energy financing by bringing new investors to the table and structuring first-of-a-kind deals. We have deep expertise, a strong track record, and vast networks in the space. In a way, we have spent our entire careers preparing for the launch of Reunion.
Part 3: A unique market opportunity
When the Inflation Reduction Act passed in August 2022, we immediately knew that the provision on “transferability of tax credits” would transform the way that renewable energy is financed. After years financing projects the traditional way (“tax equity financing”), we knew how painful the process often was for both renewable energy developers, and also for investors.
We spent our entire professional careers trying to make renewable energy financing more efficient and scalable, but there was one critical, insurmountable hurdle that we could not change - the US tax code. But with the passage of the IRA, tax credits became freely tradable for the first time - for tax nerds like us, we knew this would be massively disruptive (and no, we aren’t exaggerating!)
The market for transferable tax credits is also enormous; analysts expect upwards of $75B of clean energy tax credits generated per year by 2027 (see chart below), but the existing tax equity market only supplies roughly $20B in tax credit volume each year. Platforms such as Reunion will be needed to facilitate the transfer of large volumes of renewable energy tax credits.
Segue Sustainable Infrastructure has been at the forefront of the discussion on transferable tax credits, and they led a seed round in Reunion in December 2022, along with a dozen leading entrepreneurs and CEOs.
Source: CohnReznick
The future is bright; Reunion is growing
I listened to hundreds of business plans in my previous work as an early stage startup investor. While there are no rules to achieving startup success, several patterns emerged in teams I met with that ultimately were the most successful:
- Co-founders previously worked together on hard problems: The ideal co-founder brings relevant skills, similar goals and risk tolerance, and must be somebody you work well with. Not easy to find! As a result, it’s common for successful co-founder teams to have previous experience working together
- The team is uniquely positioned to solve the problem (“founder-market fit”): while some founders can pick a new market and just figure it out, it’s more likely that founders with a deep understanding or insight about their market find success
- Ripe market opportunity: The market has to be large, and growing in some interesting way that has not yet been exploited. Marc Andreesen says that when it comes to startup success, “market matters most”... even more than the product or team.
I am lucky to say that Reunion checks all three of these boxes. I have a long working history with my co-founder, who happened to be looking to get back into entrepreneurship at the same time I was. We picked a market that we know uniquely well, and it just so happened that a legislative change opened a huge new market opportunity.
Now is an exciting time to join Reunion at the ground floor; we have an incredible opportunity in front of us, and we are experiencing strong demand from both project developers and tax credit buyers. We are hiring for high-impact roles across marketing, business development, and project finance; please reach us with applications or referrals at recruiting@reunioninfra.com.
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At Reunion, we believe that setting a strong company culture from the start is a critical part of building a high-performing company. Our founding team worked together to define company values that influence our everyday work; from how we screen and hire new employees, to how we collaborate and develop our product offering.
Our mission has remained constant. Our team members are motivated by our mission to make a meaningful difference in the fight against climate change. We believe that our team is uniquely positioned to increase deployment of renewable energy through our deep experience in financing.
We have five core company values. Every quarter, we re-visit our company values and ask whether these values remain relevant to how we work. This always spurs insightful and honest reflections on where we are succeeding and where we can improve. Sometimes, it leads us to adjust our company values to better reflect what is truly important.
Our mission
Reunion’s mission is to accelerate investment into renewable energy projects by simplifying the project financing process.
Our values
Communicate empathetically and directly
- We communicate openly and directly, even in disagreement
- We are kind and assume our teammates, customers, and partners have the best intentions
How can we go faster?
- We make firm and fast decisions, particularly on decisions that can be reversed
- We ship fast and adjust course based on data and feedback
How can we do it better?
- We run experiments that we can measure and are open to changing our minds when presented with data
- We keep an “enterprise-level” bar for excellence
Everybody is a leader and an owner
- Anybody can own an initiative and make it a reality
- If we commit to a project, we aim to follow through to finish
Continuous growth
- We strive to keep learning and improving, both as a company and as individuals
- Feedback is a gift; we embrace opportunities to grow
Come join us
Defining and refining our company values has helped us clarify who we want to be as a company. We have developed a high-performance culture, and we have surprised ourselves at times with our pace of execution despite having a small (but mighty) team. I should also emphasize that, although it’s not an official company value, we also have fun! 🙂
We believe that hiring and motivating the best people will be core to achieving our climate mission. If our mission and values resonate with you, we are always looking for talented people to join us – check out our open roles.
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SAN FRANCISCO, CA — Today, Reunion launched its digital marketplace for clean energy tax credits, with over $1 billion of transferable tax credits available to immediately transact. Reunion has engaged with more than 200 clean energy developers to identify high quality solar, wind, battery storage, and biogas projects.
Reunion’s marketplace connects clean energy projects with corporations seeking to invest in federal tax credits at an attractive, risk-adjusted return. Reunion provides project origination, due diligence, insurance, and transaction support services to facilitate the purchase and sale of transferable tax credits, as enabled by the Inflation Reduction Act of 2022.
“Corporations play a key role in financing the clean energy transition and our marketplace will give tax credit buyers the confidence to transact,” said Andy Moon, CEO of Reunion. “Our team has spent most of our careers working in renewable energy tax equity and project finance, and we believe that properly structuring the purchase and sale of these credits in a diligent, yet scalable approach can unlock billions of dollars for critical clean energy projects.”
Reunion is working with dozens of projects to sell tax credits between $2M - $100M+ to qualified taxpayers. Reunion’s cohort of buyers represent corporate taxpayers in manufacturing, financial services, retail, technology, banking, and more.
“We are pleased to work with some of the most well-known and reputable project developers in the renewable energy business,” said Billy Lee, President of Reunion. “The early days of this market are all about building trust with the buyer and seller communities. The quality of projects we’ve assembled on our marketplace, along with our deep expertise in structuring tax credit transactions, will go a long way toward making that happen.”
Reunion raised corporate funding in early 2023, led by Segue Sustainable Infrastructure. David Riester, Managing Partner at Segue, commented on Reunion’s launch, saying “We backed Reunion because they have the right people and approach to help shepherd the energy transition into this new ‘season’ of project financing brought forth by tax credit transferability. There’s no more experienced team positioned to accelerate the flow of capital into these clean energy projects.”
Corporate tax credit buyers can register for early access to Reunion’s marketplace at www.reunioninfra.com.
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The Inflation Reduction Act of 2022 (IRA) delivered a plethora of benefits to renewable energy project developers, including billions of dollars in tax credits and newly created flexibility to transfer tax credits or capture direct pay.
But these benefits come with strings attached, and it’s important for any clean energy project developer to understand the rules before diving into new projects. These strings are divided into two groups – “carrots” and “sticks” that the federal government is using to guide developers to meet certain conditions. Starting with the “sticks,” here is a brief overview of the eligibility rules for renewable energy Production Tax Credits (PTC) and Investment Tax Credits (ITC):
How should developers think about these rules?
The simplest way to approach the wage and apprenticeship rules is to treat them as necessary prerequisites to project development. Without following these rules, developers will only capture a 6% ITC or 0.52 cent/kWh and leave significant value on the table.
Developers who fail to meet wage and apprenticeship standards may “cure” their shortcomings by repaying shortfalls plus interest, or certain fees/penalties. If the developer was determined to have intentionally failed to meet these standards, the penalty amounts increase significantly.
Fortunately for developers, the Department of Labor already publishes wage determinations and rates, and will be adding to that list as this program takes effect. Likewise, there has been increasing interest in apprenticeship programs across the country. New programs like the Real World Academy in New Jersey and the Sustainability Hub in Illinois are springing up and the Solar Energy Industries Association (SEIA) has a number of resources to support developers.
How do these prerequisites differ from adders?
So-called “adders” are the second important part of the tax credit regime created by the IRA. Serving as the “carrot” for developers, adders are true incentives for development under certain conditions. Here is a brief overview of the adders specific to the Production Tax Credit (PTC) and Investment Tax Credit (ITC):
There are specific parameters to the definitions above, which can be found here.
How should developers think about adders?
Adders can be a valuable way to capture additional PTCs or ITCs for any given project. Importantly, however, developers should be thorough in their diligence of eligibility. Many tax equity investors won’t fund adders until full IRS guidance has been issued, and will expect to see diligence documents proving the project’s qualifications.
Some groups are already publishing helpful maps to illustrate where certain adders may be available, such as energy communities and low-income communities. Here is one example from S&P Global.
But once IRS guidance is in-hand and developers can confidently assess their project locations and domestic content, the adders under the IRA can deliver even more tax equity or transfer tax credit capital to projects.
Where do we go from here?
The Department of Treasury and the IRS are continuing to release guidance related to the IRA. In tandem, the project developer industry is collaborating with each other and industry groups like SEIA to identify best practices and optimize for maximum development value. Over the course of 2023, expect to receive more clarity on the formal obligations under the IRA, and the informal best practices across the renewable energy industry.
Reunion Infrastructure is working with 50+ developers to source transfer tax credits for banks, insurance companies, and corporates with tax appetite in 2023 and 2024 or beyond. Whether you are a developer or taxpayer looking for credits, please reach out at info@reunioninfra.com.
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The IRA greatly expanded energy-related federal income tax credits and added §6418 to the Internal Revenue Code, which allows “eligible taxpayers” to elect to transfer (i.e., sell) certain tax credits to unrelated taxpayers for cash.
Eligible taxpayers can elect to transfer all or a portion of an eligible credit, and the transferee taxpayer is treated as the taxpayer with respect to such credit (or such portion thereof). The transferee taxpayer is allowed to claim the transferred tax credits on their tax returns, while also assuming some risk in the event of a recapture event or a challenge by the IRS on the qualification of the transferred tax credit.
Tax credits can be transferred for tax years starting after December 31, 2022. The cash payments are excluded from the transferor’s gross income and are not deductible by the transferee.
Tax credits under the following U.S. tax code sections can be transferred: §45, §45Y, §48, §48E, §45Q, §45V, §45U, §45Z, §45X, §48C, and §30C. (To learn more about each credit, read our overview of the IRA's 11 transferable tax credits.)
How we got here
A small number of corporate taxpayers have traditionally helped project developers monetize investment tax credits (ITCs) and production tax credits (PTCs) through a process called "tax equity." This process is complex and requires a team of lawyers, accountants, and appraisers to help establish complicated partnership structures. As a result, the majority of capital that flowed into the $15B-$20B pre-IRA tax equity market was historically provided by a handful of large banks. Given the limitations on these banks’ tax appetite, something would need to change in order to attract capital for the IRA’s 10x or greater tax credit regime.
To address this challenge, Congress created a new monetization mechanism called transferability or transferable tax credits. Now, post-IRA, any company with federal income tax liability may use a standardized purchase and sale agreement to buy tax credits at a discounted rate, allowing them to earn a savings on their tax bill while also financing new sustainable infrastructure.
What corporate tax groups and sustainability teams need to know
By exchanging cash for transferable tax credits, a corporation could, for example, spend $45M for $50M of tax savings, realizing a $5M savings compared with paying their normal federal income tax liability.There are nine types of tax credits (across 11 sections of the tax code) now available for transferability. Companies can buy transferable credits from different technologies and project types. More established technologies are likely to be viewed as lower risk, whereas newer technologies may offer more attractive pricing.
Across these nine types of tax credits, several of them are categorized as “production tax credits” (PTCs) or “investment tax credits” (ITCs). This terminology refers to how the credit is generated–either as the item in question is produced (e.g. kilowatt hours of renewable energy) or as capital is invested in the associated project (e.g. a percentage of the cost of a solar farm). Tax groups will want to make strategic decisions about sourcing PTCs vs. ITCs or both, in order to secure streams of tax credits over time in the case of PTCs or one-off purchases in the case of ITCs. Intermediaries can help in structuring the procurement of these credits.
Timing and process
Some specifics of the transfer process are awaiting clarification from the Treasury department, but there are some things we already know from section 6418 of the U.S. tax code:
- Credits can be elected for transfer up to the time the seller files their tax return (Example: a credit generated in CY2023 can be transferred to a buyer until April 15, 2024 or October 15, 2024 for extended corporate filers)
- Credits can only be transferred in exchange for cash to an unrelated party
- Cash paid by the buyer is nondeductible
- Credits may only be transferred one time; resale of the credits is not allowed
- Buyers may carry back the credits up to three years, and carry forward the credits up to 22 years
The transactions themselves will be completed with a customized but relatively simple purchase and sale-style agreement. These should be constructed by experienced tax attorneys to ensure adequate protections for buyers and sellers, but are ultimately less complex than traditional tax equity partnership structures.
Risk management
Transferable tax credits carry lower risk, in certain cases, versus traditional tax equity partnerships. For ITCs, a tax credit buyer is not concerned with the ongoing performance of the project beyond low-probability recapture events. And even for PTCs, the primary performance risk is related to the produced credit volume and not financial performance. The projects and developers associated with these credits should be vetted and underwritten to ensure credits are delivered as expected. For buyers of transferable credits, this review process can add certainty to reduce disallowance or recapture risk. Typically, buyers can also secure indemnifications from sellers to protect themselves in the event of recapture events. Transferable credits can also be insured against recapture, providing a backstop to indemnification.
Conclusion
Transferability represents a new pathway to access well-understood tax benefits for corporate taxpayers. By participating in the transferable tax credit market, companies can “do well and do good” by supporting renewable energy infrastructure and reduce their tax liability. Partnering with seasoned clean energy finance experts can help reduce risk and ensure a smooth, replicable transition process. For more information or to explore live project opportunities, please reach out to kevin@reunioninfra.com.
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