Reunion's Market Monitor Q2 2025 Report

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.

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Speed of execution is a critical factor in winning deals

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.

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Very large credits carry premium pricing

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.

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Buyers are increasingly interested in ITCs

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.

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Pricing on ITCs, PTCs, and AMPCs trended upward in Q3

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.

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There is a price ceiling on ITC transactions

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.

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Scope and coverage of insurance is a focus of deal negotiation

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.

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Buyer fee reimbursement becoming standard

‍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.

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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. 

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Register

Instructions for joining the webinar will be sent once you have registered. If you have any questions, please contact Maria Verbaite.

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We will make a recording available for those who cannot attend the webinar live.

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Topics

The workshop will include three 15-minute modules, with about five minutes of Q&A per module.

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Speakers

Phil Schapiro – Summit Ridge Energy

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 – Reunion

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. 

Questions welcome

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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The Inflation Reduction Act of 2022 (IRA) greatly expanded energy-related federal income tax credits and created Internal Revenue Code Section 6418, which allows eligible taxpayers to transfer, or sell, certain clean energy tax credits to unrelated parties for cash.

One key area of due diligence when purchasing a tax credit is to ensure that the project complies with prevailing wage and apprenticeship requirements (PWA), which the IRA introduced to encourage a robust market for well-paying clean energy jobs.

Clean energy projects that comply with PWA requirements receive a five-times multiplier on the value of tax credits. If a tax credit buyer purchases a credit that later is found not to comply with PWA requirements, the buyer will face a recapture of the increased tax credit amount.

Buyers of tax credits should understand PWA requirements and the documentation required to ensure compliance. Buyers should also mitigate the risk of recapture due to PWA noncompliance with careful due diligence, contractual protections (including provisions requiring the tax credit seller to compensate the buyer for PWA noncompliance), and tax credit insurance.

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How PWA applies to each credit type

All but one of the IRA’s eleven transferable tax credits are subject to PWA requirements; the exception is the Section 45X advanced manufacturing production credit (AMPC). The following table shows how long PWA compliance is required for each credit.

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Projects that comply with PWA requirements receive a tax credit five times greater than non-PWA-compliant projects. For example, a solar project with a $100 million cost basis qualifies for a base tax credit amount of $6 million (assuming a Section 48 ITC). If the project meets PWA compliance, the tax credit amount increases to $30 million.

If a tax credit buyer purchases a credit that later is determined not to comply with PWA requirements, then the Internal Revenue Service will recapture the PWA multiplier portion of the credits, which is equivalent to eighty percent of the tax credit value — for example, $24 million of a $30 million credit. For Section 48 ITCs, the recapture is applied to the unvested portion of the credit (the ITC vests twenty percent annually over a five-year period).

As a result, buyers of tax credits must perform proper diligence on projects to ensure that the project will not later be found to fail to comply with PWA requirements.

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Summary of PWA requirements

Prevailing wage requirements

Prevailing wage rules require that certain workers be paid a minimum prevailing wage specified by the US Department of Labor (DOL). The DOL publishes a list of prevailing wages on www.sam.gov according to geographic location, labor classification, and type of construction. It is also important to use the correct wage determination based on timing of work, which is primarily driven by when construction begins.

If no applicable published wage rate is available, the taxpayer or project developer must request a supplemental wage determination from the DOL.

Apprenticeship requirements

The apprenticeship rules require that a certain percentage of labor hours during construction, alteration, or repair for a project be performed by a qualified apprentice. The minimum percentage of hours that must be performed by qualified apprentices is:

• 12.5% for projects that began construction in 2023
• 15.0% for projects that begin construction in 2024 or later

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Two exceptions to PWA compliance

The IRA includes two general exceptions to PWA requirements — the “beginning of construction” exception and the “one megawatt” exception. Projects that meet one of these exceptions receive the five-times credit multiplier without necessarily paying prevailing wages and employing qualified apprentices. Specifically:

• Beginning of construction: Projects that began construction before January 29, 2023, are generally exempt from the wage and apprenticeship rules, except for credits under Sections 48C and 45Z
• One megawatt: Projects under Sections 45 and 48 (and their replacements under Sections 45Y and 48E) are exempt from PWA if the maximum net output is less than one megawatt or the capacity of electrical or equivalent thermal storage is less than one megawatt

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PWA information developers should collect and maintain

In its August 2023 guidance, the Treasury provided a list of required and recommended documentation for PWA compliance. All documentation should cover every person working on the project, including contractors and subcontractors. Subcontractors may be several companies removed from the actual sponsor of the project.

Required PWA information

According to the IRS guidance from August 2023, PWA documentation must include “payroll records for each laborer and mechanic (including each qualified apprentice) employed by the taxpayer, contractor, or subcontractor employed.”

Recommended PWA information

The IRS also recommends collecting additional documentation. Nine of the recommended items relate to wages — including the name, social security number, address, and email address for each laborer and mechanic — and five items relate to apprentices. Buyers should require this optional documentation, which can be found in Proposed Regulations Section 1.45-12(b) and (c).

Additionally, the PWA’s proposed labor requirements have significant overlap with the Davis- Bacon Act — a nearly century-old federal law. Some project developers document certified payroll, a practice required for federal projects subject to Davis-Bacon rules, although not required under the IRA. Each employee on the certified payroll must receive weekly payment for work performed and must have their legal name, address, correct job classification, rate of prevailing wage pay, daily hours worked, weekly hours worked, and amount paid clearly recorded on the required certified payroll report. Other project developers use the certified payroll form, WH-347, when compiling and maintaining payroll records.

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Opportunity to cure if a project fails to comply

If a clean energy project claims an increased PWA credit value and the IRS later determines the project did not meet PWA requirements, the tax credit is not automatically reduced to the base rate. A deficiency can be cured within 180 days after the IRS identifies a failure.

The seller of the tax credit has a strong incentive to cure any PWA issues, as it typically signs an indemnity to compensate the buyer in the event of a recapture of tax credits. The seller is also closer to the underlying compliance issue. That said, the buyer should require the seller to provide notification of any failure to meet PWA requirements; the buyer may want to step in and make penalty payments on behalf of the seller if there is substantial doubt as to whether the seller will make the cure.

Requirements for curing prevailing wage deficiencies

To cure prevailing wage defects, the taxpayer or project developer must:

• Pay the affected laborers or mechanics the difference between what they were paid and the amount they were required to have been paid (multiplied by three for intentional disregard), plus interest at the federal short-term rate (as defined in IRC Section 6621) plus six percent; and
• Pay a penalty to the IRS of $5,000 (or $10,000 for intentional disregard) for each laborer or mechanic who was not paid at the prevailing wage rate during the year

Requirements for curing apprenticeship deficiencies

To cure a failure to meet the apprenticeship requirements, project developers must pay a penalty of $50 multiplied by the total labor hours for which the apprenticeship requirements were not met. The amount of the penalty with respect to the apprenticeship requirements is also increased to $500 per labor hour if the IRS determines the failure was due to intentional disregard.

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Buyers have several tools to mitigate risk of PWA noncompliance

Buyers should proactively manage risk concerning PWA compliance. Buyers have three primary risk management tools at their disposal:

• Comprehensive due diligence
• Properly structured tax credit transfer agreement (TCTA)
• Tax credit insurance

Comprehensive due diligence

Proper and comprehensive due diligence is critical for tax credit purchasers.

Project developers currently document PWA in a variety of ways, from manual capture in spreadsheets to certifi ed payroll systems to the use of third-party consultants.

Buyers should understand the process by which PWA information is tracked so they can reconstruct payment records in the event of an IRS challenge. Each contractor and subcontractor should have a system in place to document payroll. In addition, proper records should be kept so workers who were underpaid can be located and compensated to cure any failure to meet PWA requirements.

In the case of the Section 48 ITC, the seller should also provide any information or compliance reports the IRS requires during the five-year recapture period.

Properly structured TCTA

Buyers bear the risk of any reduction in tax credit amount due to noncompliance with PWA. Buyers should ensure that the TCTA includes sufficient indemnity from the seller in the event of PWA noncompliance. The indemnity should make the buyer economically whole, including the cost of any penalties.

In addition, the TCTA should include several other clauses that protect tax credit buyers:

• Representations and warranties: The seller has complied with or is exempt from all recordkeeping requirements relating to the PWA requirements
• Indemnification: The seller’s indemnification obligations include any interest or penalties the IRS may impose because of PWA noncompliance
• Conditions precedent to closing: The seller must furnish evidence the project has complied with PWA requirements
• Post-closing obligations: The seller will comply with all laws and regulations required to qualify for and receive the PWA multiplier, including making the necessary filings, registrations, and elections with the IRS

Purchase tax credit insurance

Finally, tax credit insurance is available to mitigate the risk of noncompliance with PWA requirements. Tax credit insurance is recommended if the buyer has doubts about the ability of the seller to fulfill its indemnity obligation in the event of an IRS challenge. Tax credit insurance can be sized to make the buyer whole in the event the IRA imposes a penalty.

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Conclusion

For corporate taxpayers, transferable tax credits represent a new opportunity to reduce federal tax liabilities and achieve a strong risk-adjusted return while providing much-needed capital to clean energy projects. However, buyers are responsible for financial penalties imposed by the IRS due to noncompliance with PWA requirements.

Tax credit buyers should proactively mitigate the risk of penalties with careful due diligence, contractual protections, and tax credit insurance, ensuring that they preserve the full financial benefi t of their tax credit purchase.

For a deeper dive into how savvy buyers are approaching these transactions in today’s market, see our insights in “Transferable Tax Credits in 2025: The Buyer Perspective.”

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.

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Highlights from the final regulations

Individuals, trusts, estates, and closely held C corporations remain largely on the sidelines

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.)

Deprecation cannot be transferred

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.”

Bonus credits cannot be sold separately

The IRA created three bonus, or adder, credits, which can increase the value of a clean energy project’s tax credits:

• Energy communities
• Low-income communities
• Domestic content

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. 

The "intends to purchase" provision remains unchanged

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."

Generators of §45X, §45V, and §45Q credits can make facility-specific elections for transferability or direct pay

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:

• §45V PTC: The direct pay/transfer election is made during the taxable year the qualified clean hydrogen production facility is placed in service
• §45Q PTC: The direct pay/transfer election is made during the taxable year the “single process train” is placed in service 
• §45X AMPC: The direct pay/transfer election is made during the taxable year in which eligible components are produced

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.

Advanced cash payments for multi-year PTCs are not permitted – but borrowing against expected future tax credit payments is permitted

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.” 

Intermediaries can serve as brokers but not dealers

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. 

“Required minimum documentation” remains the same

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."

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Improvements likely coming to the pre-registration portal

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."

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Plenty more guidance to come in the next 20-ish business days

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.

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Discuss the regulations with Reunion

Please contact Reunion's transactions team to understand how these final regulations could impact your organization's plans to purchase clean energy tax credits.

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