The transferable tax credit market continues to evolve, and Reunion is seeing several key trends emerge
Reunion recently surpassed $1.5B in clean energy tax credit sales in 2024. Our transactions have spanned solar, wind, battery storage, fuel cells, biomass, and advanced manufacturing components.
Our team works directly with dozens of Fortune 500 tax credit buyers and leading clean energy companies, and we have observed several emerging trends in 2024.
An increasing number of deals are competitive bidding situations. Buyers should have a clear sense from relevant stakeholders — e.g., CFO, legal, board of directors — on what deal terms are acceptable and what specific approvals are required prior to starting the negotiation process, as delays can be the difference between winning and losing a deal.
We have seen several companies proactively establish investment thresholds that allow them to move quickly for the right credit.
There has been increased interest in tax credit purchases from major corporations that pay $500M to $1B or more in annual taxes, resulting in more competition for large credit opportunities.
These opportunities tend to trade at a premium — upwards of $0.01 to $0.02, depending on the credit type.
Many buyers were reluctant to pay for ITCs early in the year because doing so required them to “pre-pay” their taxes. Buyers, consequently, willing to purchase ITCs in Q1 or Q2 were rewarded with deeper discounts.
Now that we are in Q3 and payments for ITCs will not occur until later in the year, buyer interest has increased.
Buyers, particularly ones that have bid and lost on tax credit opportunities, want to make sure that they lock in credits in time to offset Q3 and/or Q4 estimated tax payments.
ITCs are still expected to trade at a wider discount compared to production credits. Although sellers often ask for mid-$0.90s pricing for ITCs, buyers typically push back since lower-risk PTCs or AMPCs would be available at similar pricing.
Initially, tax credit buyers demanded tax credit insurance to cover 100% or more of the tax credit value. We are seeing more flexibility in structures, whereby insurance may not cover the full tax credit amount due to presence of other risk mitigants such as portfolio diversification, creditworthy seller indemnities or parent guaranties.
Over the past few months, virtually every transaction we’ve executed has included a capped fee reimbursement for the buyer. The size of the reimbursement is largely dependent on the deal size.
Jordan Tamchin, Executive Vice President and leader of the Tax Insurance Practice at CAC Specialty, will join Reunion's transactions team for a 60-minute workshop covering recent market developments in tax credit insurance and a lively discussion about unique tax insurance solutions that have emerged in 2024.
Instructions for joining the webinar will be sent once you have registered. If you have any questions, please contact Maria Verbaite.
We will make a recording available for those who cannot attend the webinar live.
Jordan Tamchin is Executive Vice President and leader of the Tax Insurance Practice at CAC Specialty, where he specializes in delivering innovative and unique insurance solutions for the most complex tax risks across a variety of tax credit and tax equity deals.
Andy Moon and Billy Lee are the co-founders of Reunion and work closely with Fortune 500 corporations and clean energy companies to buy and sell clean energy tax credits.
Andy and Billy have led hundreds of clean energy financings since 2006, including some of the first solar transactions with institutions such as US Bank, JP Morgan, Wells Fargo, Bank of America, D.E. Shaw, and others.
We want our office hours to be interactive, so please bring any questions you have, whether related to current market conditions, pricing, or commercial terms.
You're welcome to ask questions beforehand.
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Reunion recently announced our collaboration with Summit Ridge to sell $40M in tax credits to fund community solar projects.
Phil Schapiro, VP of Project Finance at Summit Ridge Energy, will join Reunion's transactions team on Tuesday, August 20th for a 60-minute workshop covering recent market developments and a discussion about their experience working through a tax credit transaction.
Instructions for joining the webinar will be sent once you have registered. If you have any questions, please contact Maria Verbaite.
We will make a recording available for those who cannot attend the webinar live.
The workshop will include three 15-minute modules, with about five minutes of Q&A per module.
Phil Schapiro is VP of Project Finance at Summit Ridge Energy, where he leads fundraising efforts across the capital stack including debt, equity, and monetization of tax credits.
Andy Moon and Billy Lee are the co-founders of Reunion and work closely with Fortune 500 corporations and clean energy companies to buy and sell clean energy tax credits.
Andy and Billy have led hundreds of clean energy financings since 2006, including some of the first solar transactions with institutions such as US Bank, JP Morgan, Wells Fargo, Bank of America, D.E. Shaw, and others.
We want our office hours to be interactive, so please bring any questions you have, whether related to current market conditions, pricing, or commercial terms.
You're welcome to ask questions beforehand.
On April 25, the Treasury and IRS published final regulations for the Inflation Reduction Act’s tax credit transfer mechanism. The IRS also published a press release and updated their transferability FAQs.
The final regulations carried few surprises – other than, perhaps, arriving earlier than some market participants predicted – and preserved the status quo set by the June 2023 guidance.
At Reunion, we welcomed this "non-event" and the clarity it provided, and wanted to highlight several key consistencies.
Despite “many comments” calling for a change, widely held C corporations will remain the primary buyers of transferable tax credits. While this decision will likely decrease overall liquidity in the tax credit market, it will also limit the potential for fraud and abuse.
Passive activity rules generally limit individuals, trusts, estates, and closely held C corporations to applying transferable tax credits to passive income – not active income. The final regulations did not adjust this stance. (However, a potential exception exists for certain closely held C corporations, which allows them to offset active income with tax credits.)
The IRS did not change its stance on depreciation. As the FAQ states, “Only a taxpayer that has an ownership interest in the project may claim tax depreciation. Transferability does not allow depreciation benefits to be transferred.”
The IRA created three bonus, or adder, credits, which can increase the value of a clean energy project’s tax credits:
The Treasury’s June guidance stated that bonus credits cannot be sold separately from a project’s other credits. A developer cannot, in other words, sell its base credits to one company and its bonus credits – perhaps at a different price per credit – to another company.
Instead, all credits must be sold as “vertical slices” and be pari passu to one another. In practice, if a single project has multiple buyers for its credits, all buyers have the same risk exposure.
April’s regulations did not change the Treasury’s position.
Tax credit buyers can still "take into account a specified credit portion that it has purchased, or intends to purchase, to calculate its estimated tax payments." Of course, buyers remain liable for any underpayments.
The regulations clarified that the "intends to purchase" language "illustrates that all the requirements of proposed §1.6418-2(b) do not have to be met for a transferee taxpayer to take the expected eligible credit into account in its estimated tax calculations."
An advanced manufacturer’s decision to use transferability or direct pay to monetize their §45X tax credits need not be binary. If a manufacturer has multiple facilities, they can make the transferability-or-direct-pay decision at the facility level. If a manufacturer only has one facility, however, their decision is binary.
The same optionality holds true for the §45V PTC for clean hydrogen and §45Q PTC carbon capture, although the timing of the election varies by credit:
Importantly, because the §45X election is made during the taxable year in which an eligible component is produced, production facilities that predated the IRS may be eligible for the credit.
Although “upfront payments for PTCs determined in future taxable years are standard in tax equity transactions,” the final regulations stated that transferred PTCs must be paid for in cash one year at a time. This holds true for ten- and 12-year PTCs.
Permitting advanced payments would “raise several complex legal and administrative issues, such as whether an excessive credit transfer has occurred or if the eligible taxpayer has gross income if prepaid eligible credits were not transferred in a later tax year."
On an encouraging note, the final regulations specifically state that “there is no prohibition on either a transferee taxpayer” – that is, a tax credit buyer – “or another third-party loaning funds to an eligible taxpayer, including loans secured by an eligible credit purchase and sale agreement.”
The final regulations, unsurprisingly, left unaltered the assumed role of tax credit intermediaries (like Reunion) in the transferability market. Intermediaries can serve as brokers and facilitators in tax credit transfers, helping to match and advise buyers and sellers.
Intermediaries cannot, however, serve as dealers, effectively taking ownership of a tax credit with the intent of transferring/selling it again.
The final regulations acknowledge calls for an increase to the amount of required minimum documentation that an eligible taxpayer must provide to a transferee taxpayer to make a valid transfer.
Nonetheless, the Treasury and IRS left the required minimum unchanged. Perhaps as a nod to the validity of increasing the required minimum, the final regulations remind market participants that, “...while the required minimum documentation requirements are the same for all taxpayers, any particular agreement between an eligible taxpayer and transferee taxpayer may go beyond the required minimum documentation based on the arrangement of the parties. The proposed regulations allowed sufficient flexibility for market participants to determine if more information is necessary in a particular transaction, while balancing the burden of producing the required minimum documentation required to make a transfer election.”
The final regulations also remind market participants that "§6418(g)(2)(B) specifically places a due diligence responsibility on the transferee taxpayer."
The IRS opened the tax credit pre-registration portal in December to significant fanfare. But, as with any brand-new IT system, there have been calls for improvement.
While the IRS would not commit to set application review times, it left the door open to "continue to review the efficiency of the registration portal, including functionality responses from the public, to determine whether changes should be implemented or whether additional guidance or publications should be issued."
In Norton Rose Fulbright’s annual Cost of Capital call, the panelists aptly brought attention to the Congressional Review Act, which “is a tool Congress can use to overturn certain federal agency actions.”
With respect to the Inflation Reduction Act, an incoming Congress (backed by a Trump administration) could use the CRA to unwind IRA regulations that were issued within 60 legislative days of the previous Congress.
Although the exact date for the beginning of the 60-day window remains to be seen, it’s potentially in late May or early June. This gives the Treasury and IRS a little over 20 business days to issue a backlog of IRA-related guidance and regulations.
The IRS 2023-2024 Priority Guidance Plan details what guidance the IRS is prioritizing through the end of the plan year, which is June 30, 2024.
Please contact Reunion's transactions team to understand how these final regulations could impact your organization's plans to purchase clean energy tax credits.
The market for clean energy tax credit transfers has accelerated rapidly in 2024, as corporate tax and treasury leaders see a significant new opportunity to reduce tax liabilities and increase corporate cash availability.
A complete transferable clean energy tax credit transaction, from identifying the opportunity to closing the deal, can be summarized in seven key steps.
Varies by company.
Through an introductory call, Reunion's transactions team can equip your company with insights on eligibility, appropriateness, market dynamics, and risk. We can also help your team prepare a business case/investment committee memo and provide supporting materials. For larger organizations, Reunion has organized tax credit "workshops," which we have found are particularly effective for aligning multiple functional teams.
One to three weeks.
Reunion takes a "push" and "pull" approach when helping companies find projects that most align with their needs. On the "push" front, we curate a list of tax credit opportunities based on the criteria we identified in step one and share it with your team. For many companies, we do this on a rolling basis as new projects join our platform. On the "pull" front, we provide your team with access to our managed tax credit marketplace, where we have over $7B (and growing) in near-term tax credits available.
Once your team has the right project(s) in mind, Reunion will populate our form term sheet on your company's behalf. We'll levarage our market intelligence to ensure your proposal is competitive and assist you in negotiating key terms, like timing of payment, indemnification, and tax credit insurance.
One to two weeks.
Reunion conducts a preliminary screen to identify any major issues up front ("fatal flaw" due diligence analysis). From that point, we consult with your team to assess risks and recommend appropriate mitigation strategies. Importantly, this step ensures alignment of incentives: we do not want to move a transaction forward unless there is a high probability of success.
We also provide validated market intelligence to compare your proposed transaction to the risk/reward profile of similar tax credit opportunities in the market.
Two to six weeks. The precise duration depends largely on the number and relatively complexity of projects in the transaction.
Reunion spearheads the due diligence process by:
This step is optional and runs in parallel to step 4.
Reunion can help companies decide if insurance is an appropriate risk mitigation tool for their transaction. If we collectively determine that tax credit insurance makes sense, we can advise on insurance offerings, including the scope of coverage – e.g., structure, qualification, recapture, PWA, bonus credit adders – and where gaps might exist.
We can also help you validate that the insurance policy is appropriately sized and includes penalties and tax gross-up and contest costs.
This step runs in parallel to step 4.
Reunion streamlines the negotiation process for buyers and sellers by providing a template legal document and helping parties focus on the most pertinent deal topics.
Ongoing duration depending on credit type.
Our transactions team will issue both parties reminders about filing requirements and deadlines, including tax forms and compliance. In subsequent tax years/quarters, Reunion will provide early acccess to new deals.
Reunion’s team of clean energy and tax credit experts are here to support you through the entire process of buying and conducting due diligence on IRA tax credits. We draw on our deep expertise to help you navigate tax credit transactions, and our marketplace features the widest pool of tax credit opportunities available in the industry.
Our key differentiators include:
Jordan Tamchin, Executive Vice President and leader of the Tax Insurance Practice at CAC Specialty, joins our Q3 buyer office hours on Thursday, September 5th at 2:00pm ET.
This due diligence checklist and documentation guide gives tax credit buyers, sellers, and their respective advisors a set of shared expectations on the required analysis and documentation for §48 investment tax credits.
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