Understanding transferable tax credit carrybacks and carryforwards

Reunion’s breadth of experience includes working with both new and seasoned tax credit market participants. Since the ability to transfer tax credits was only enacted through the Inflation Reduction Act in 2022, some buyers are still getting introduced to the advantages of transferable tax credits as it is written in the Internal Revenue Code §6418 (the Code). Therefore, it is essential for buyers to be aware of the negotiable terms in the transaction, as no two tax credit transfers are the same. Each party (and the underlying asset) involved in the transaction may require bespoke terms and conditions to make the deal close, as is exemplified in this case study of a $200m PTC transfer that met the “audit-ready” diligence requirements of the buyer. 

Below are 10 terms that Reunion helps buyers consider when negotiating a tax credit transfer agreement (TCTA). These are not ordered by importance since each buyer’s priorities are particular to them, however, each of the following should be considered when negotiating a transaction:

Payment Terms

The payment terms are primarily composed of the purchase price and payment timing. 

• Purchase Price: The purchase price is calculated as a dollar value for every $1.00 tax credit transferred – for instance, $0.935. Buyers and sellers negotiate this term based on the economics of the transaction and key risk factors, such as whether the counterparty is investment grade, what kinds of tax credits are involved, and the total expected volume of the transaction. Read more about the buyer’s perspective for these transactions and how to set the appropriate price. 
• Payment Timing: When a transaction closes can significantly influence the negotiated purchase price. Transactions with earlier payments, such as a simultaneous sign and close, are often favored by the seller due to the time value of money. Therefore, the seller may be more open to a lower purchase price. Sometimes the buyer is inelastic on this term and requires that transfer payments align with their quarterly estimated tax payment dates to minimize out-of-pocket spend.

Transaction Cost Reimbursement

Most buyers opt to include a transaction cost reimbursement provision in their tax credit bids. It is common for buyers to ask sellers to reimburse some or all of the transaction costs they incur. This request is often driven by accounting considerations, as most buyers do not want to incur an “above the line” expense to generate a “below the line” tax benefit.

Buyers should first identify the expenses they will incur, such as legal fees for outside counsel or costs for accounting firms providing third-party diligence support. For transfers with subsequent funding milestones (e.g. multiple closing dates), buyers should consider the timing of expenses as well as the amount needed to support subsequent fundings.Buyers must weigh what other impacts this provision could have on the transaction. A reimbursement provision will ultimately decrease the amount of proceeds to the seller, so it could impact the overall economics of the transaction (e.g., smaller tax credit transfers may not support large transaction cost reimbursements) or make the bid less competitive when a seller considers their net proceeds.

Exclusivity

Most of Reunion’s tax credit transfers move from term sheet execution to TCTA signing in under 45 calendar days. During the exclusivity period, both parties are generally incurring costs related to definitive documentation and due diligence. To protect their investment of time, effort, and money, buyers typically request an exclusive right to purchase the credits. 

Buyers can negotiate for a fixed exclusivity period when drafting the term sheet and will typically request an extension if the exclusivity period has expired and all parties are working in good faith to close the transaction. Reunion has seen exclusivity periods range from zero to 60 days following execution of the term sheet. A period beyond 60 days is not typical and could signal to the seller that the buyer is not able to close the transaction in a timely manner.

Indemnity Scope

In every tax credit transfer agreement, a buyer will require the seller to indemnify them for the disallowance or recapture of tax credits. Indemnities can be structured in two ways:

• Breach-Based Indemnity: Indemnification for a loss is triggered by a specific breach of a representation, warranty, or covenant.
• No-Fault Indemnity: Indemnification for a loss occurs regardless of whether a contractual breach has happened. 

Most indemnities will cover any tax gross-up, interest, penalties, and fees incurred in connection with the loss. For ITC transactions, as further described in the Section 48 ITC Due Diligence Guide, buyers negotiate for indemnity in the case of a recapture event.

Indemnity Seller Cap

Sellers may negotiate for a cap to the amount recoverable through the indemnity clause. Stipulated limitations of liability are often required by larger, institutional sellers. If the seller makes this request, buyers should analyze whether the indemnity limit is sufficient enough to recoup any losses incurred on an after-tax basis (including anticipated damages such as interest, penalties, taxes, and additional expenses needed to enforce the claim). 

Reunion has supported transactions with no caps, as well as transactions with caps expressed as a percentage of the face value of the credits or the purchase price of the credits. The former is more common.

IRS Contest Process

In the case of an IRS contest, Reunion sees most transactions include language in the TCTA that dictates which party will be responsible for working through, and leading, the process with the IRS and what rights each party will hold. Buyers should consider how they want this to be managed while reviewing the TCTA. In most cases, the party that is directly involved in the contest with the IRS controls the process at that party’s expense and notifies the other party as needed. 

Buyers and sellers may also be required to adhere to any requirements under the insurance policy (where applicable) to preserve and pursue a claim to minimize the amount of tax credits lost. 

Change in Law

Due to the uncertain political climate, most buyers have asked for provisions to be included in the TCTA that protect them from any future changes in the Code, or regulations that could impact their ability to utilize any purchased tax credits. A recent focus for buyers has been on language that specifically indemnifies the buyer against changes in law that are retroactive in effect (e.g., tax credits for projects placed in service on or before a retroactive change in law). Buyers may also seek the ability to terminate an agreement if there are changes in law that have a material adverse effect between signing and closing.

Credit Enhancements

When the seller is not investment grade or there are other unique risks in the transaction, the buyer can negotiate for further credit support. 

• Guarantor: The primary option is a guarantee from the seller's parent company or another affiliated party. Securing protection from an investment-grade guarantor may result in a higher net credit price if the seller does not have to obtain tax credit insurance.‍
• Tax Credit Insurance: If the seller cannot provide a suitable guarantor, tax credit insurance is an alternative. The policy limit of liability is typically based on a negotiated percentage of the tax credits' face value. However, all policies have specific exclusions to coverage, including material misrepresentations, inaccuracies or omissions, breaches of transaction documents, recapture that is caused by the seller, fraudulent or criminal conduct, any position taken in tax returns that is materially inconsistent with the covered tax position, and change in law. Additional exclusions may also apply depending on specific circumstances relating to the underwriting of the tax credit.

Step-up Limit

For investment tax credit transactions, project developers commonly sell a project into a partnership where the purchase price is “stepped up” to a fair market value (FMV) that exceeds the developer’s total capital expenditure. These FMVs should be supported by underlying documentation and assessed by a third-party appraiser. Some buyers and insurers have requested a limit to the step-up percentage as a higher step-up may have additional risk in the event of an IRS contest if the step-up is partially or fully disallowed. Recent transactions have allowed for at least a 20% step-up when supported by the facts and circumstances of the applicable transaction.

Diligence Requirements

After the buyer and seller have executed a term sheet, they work alongside their respective counsel and any other third-party assistance, to mitigate concerns around the transaction and underlying tax credits. Most transactions require a standard set of diligence items, which typically extends beyond the minimum documentation requirements under Treas. Reg. Section 1.6418-2(b)(5)(iv). Diligence may include, but is not limited to, third party reports, legal memoranda, and original project documents. 

Standard diligence items include:

• Third Party Consultant Reports: Examples include a cost segregation report, fair market value appraisal, independent engineer report, 80/20 analysis, and tax memo, depending on the type of tax credit.
• Legal Memoranda: In some instances, a third-party legal analysis may be required to address specific risks in a transaction, including qualification as eligible technology or qualification for credit adders.
• Original Project Documents: Sellers should anticipate requests to substantiate the tax credits and analyze any potential for recapture. For §48 ITCs and §45 PTCs, this may include executed site control and interconnection documents, as well as offtake, EPC, asset management, and O&M agreements. Photographs or satellite imagery is often used in diligence as well. In instances where a portfolio of distributed generation assets is involved, buyers can request a sampling size that is reasonable given the terms of the transaction. For §45X AMPCs, the documentation involves proof of sales contracts and underlying costs for the eligible technology. 

Buyers should consider which diligence items are non-negotiable given the details of the transaction and parties involved. We have seen in recent transactions, buyers and sellers collaborating on mandatory diligence requests and finding a path to resolution. On items that are not imperative, flexibility from buyers has helped transactions be executed within the exclusivity period. 

More details can be found in the Transferable Tax Credit Handbook.

Summary

Reunion has seen many recent transactions accommodate the pain points of both the buyer and the seller - especially when backed with well-reasoned requirements. Ultimately, both parties benefit from these transactions moving forward de-risked and well positioned in the market. 

If you are interested in buying credits, thinking through which of these terms is important to you will help get ahead of negotiations in your tax credit transfer deal. Then as an informed and prepared buyer, you can move quickly and take advantage of quality tax credits as they become available in the market.

Recording

Key topics

0:00 Agenda Overview
01:41  Introductions
07:45  Impact of House Tax Bill
14:35  Gaining Internal Buy-in
25:53  Origination and Sourcing Investments
31:35  Structuring and Negotiations
45:00  Due Diligence and Closing
52:00  Final Questions and Advice

Joined by: Jim Fleming of Hormel and Adam Fritz of Gallup

Reunion hosted a buyer-focused webinar with Jim and Adam, who shared important lessons they've learned in the transfer process, including getting internal buy-in, origination and sourcing investments, deal structure negotiations, and due diligence.

Insights from your peers:

• Secure Internal Buy-In Up Front: Align with relevant stakeholders (which often include the CFO, legal, and treasury teams) early on to establish your company's goals and risk tolerance. This internal alignment is crucial for moving quickly and decisively on potential deals.
• Negotiate Beyond Price: While price is top of mind for most buyers, other terms such as a strong seller indemnity and favorable payment timing can be equally important. Buyers also often negotiate for sellers to cover a capped amount of legal and diligence fees.
• Key Buyer Metrics Include Cash Savings, Timing of Payment and Strength of Seller: Buyers noted that the amount of cash savings and resulting impact on ETR was their primary consideration. Timing of payment is also significant to ensure there isn't too large of a "prepayment" on taxes. Finally, partnering with a strong seller is critical in the event there is an IRS challenge down the road.
• Conduct Thorough Due Diligence: Even with a strong seller guarantee, buyers must conduct comprehensive due diligence. Experienced legal counsel, and the right broker / advisor can help streamline the due diligence process and ensure proper risk mitigation.
• Monitor Legislative Changes: Tax credit transfer activity has picked up since the proposed reconciliation bill passed in the House, which gave the market confidence that there will not be a retroactive repeal of credits. However, the proposed bill will also lower tax liability for many buyers, which will impact the volume of credits a buyer can purchase.

NOTE TO READERS: This content is current as of Friday, June 20, 2025. Given current discussions in the Senate, we will post updates here as they become available.

On June 16, the Senate Finance Committee released its much-anticipated draft of the budget reconciliation bill. The proposed Senate bill extends tax cuts from the Tax Cuts and Jobs Act of 2017, while rolling back parts of the Inflation Reduction Act to help cover the cost. This comes on the heels of the House’s version of the bill that passed the floor on May 22, 2025, by a vote of 215-214. After the Senate votes, it will return to the House, which may lead to further changes.

The proposed Senate bill provides short-term stability, which will result in a meaningful uptick in clean energy transactions throughout the rest of the 2025 and for the next several years

Since the House bill was passed, we have observed a significant uptick in interest from tax credit buyers. We expect increased activity through the rest of 2025 and for the next 3-5 years, given the proposed Senate bill provides clear guidance that near-term tax credits eligible under the IRA (and associated transfers) will be respected. Most notably:

• Tax credits will not be retroactively repealed for the 2025 tax year.
• Transferability is preserved for all credit types, with the caveat that tax credits cannot be sold to Specified Foreign Entities (SFEs).
• Legacy §45 Production Tax Credits (PTCs) and §48 Investment Tax Credits (ITCs), which began construction before 2025, are not changed.
• Many technology-neutral credits (§45Y or §48E), including energy storage, geothermal, hydropower, and nuclear, remain eligible for the full credit value, as long as construction begins by 2033.
  
  • Wind and solar projects specifically are subject to an accelerated phasedown schedule for projects that begin construction starting in 2026. Credits will be eliminated for projects that begin construction in 2028 and beyond.
  • The phasedown is based on the beginning of construction date. Wind and solar developers are rushing to start construction on projects in 2025, which should create a steady pipeline of projects for the next several years (projects have four years from beginning of construction to be placed into service for tax purposes).
• The §45X Advanced Manufacturing Production Credits (AMPCs) phase-down schedule is largely unchanged from the IRA. Components produced and sold through 2029 are eligible for the full credit, with a phase-down starting in 2030. Components produced and sold after 2032 are not eligible for credits. There are several meaningful exceptions:
  
  • The provision relating to the sale of integrated components that are produced and sold after 2026 is repealed, which may impact certain solar component manufacturers.
  • Wind components are not eligible for credits if produced and sold after 2027. Critical minerals have a longer eligibility period, with a phasedown in credits starting in 2031.
  • Critical minerals produced and sold after 2033 are not eligible.
• There are no changes in the phasedown schedule for the §45Q Credit for Carbon Oxide Sequestration and the §45U Zero-Emission Nuclear Power Production Credit.
• Complex Foreign Entity of Concern (FEOC) restrictions were introduced, which will add significant risks and compliance burdens. However, there are short-term exemptions (e.g., at the project level, FEOC restrictions are intended to apply to projects that begin construction after December 31, 2025).

Assume that the bill becomes law in September 2025, and a project begins construction by December 2025. A project that generates a tech-neutral credit (§45Y or §48E) will qualify for the full credit value, which can be transferred to a third party. We are already seeing a wave of projects rushing to establish start of construction before the end of 2025.

Unrelated to the adjustments in tax credit eligibility, many corporate taxpayers have held off on purchasing 2025 credits due to a lack of certainty regarding their 2025 tax liability. In particular, three outstanding tax policies have disrupted tax planning. The Senate bill proposes the following changes:

• §174 R&D Expenses: Reinstate immediate expensing of R&D costs for tax years from 2025 to 2029
• Bonus depreciation: Reinstate 100% bonus depreciation for property acquired after January 19, 2025, and before January 1, 2029 (a shift from the proposed House bill, which applied to property acquired through January 1, 2030)
• §163(j): Reinstate the more favorable calculation of the limit on the interest deduction under §163(j) for tax years beginning after December 31, 2024, and before January 1, 2030

The proposed changes will lower corporate tax liabilities, which will reduce the volume of credits that certain buyers can purchase. However, increased certainty on tax liabilities will have the overall impact of giving buyers confidence to move forward on tax credit purchases. In 2024, we saw a wave of buyers enter the market in the 3rd quarter of the year when they had clarity on their tax liabilities. We anticipate a similar dynamic this year, with many buyers coming into the market later in the year and competing for a dwindling number of tax credit opportunities.

However, the Senate bill creates medium to long-term uncertainty for the clean energy market, due to proposals such as FEOC restrictions and accelerated tax credit phasedowns

Major changes in the proposed bill include:

• Accelerated phasedown or reduced eligibility of clean energy tax credits, particularly tech-neutral credits (§45Y or §48E) for solar and wind
• Elimination of the credit for wind and solar leased property that would otherwise qualify for the residential credit under §25D
• The clean hydrogen production credit (§45V) is not available for facilities that begin construction after December 31, 2025
• FEOC restrictions, which will be difficult to comply with as currently written and may slow project development due to increased risk.

Summary of proposed tax credit phasedown

Solar and wind-related credits are subject to an accelerated phasedown, which will impact upcoming project development

Tech-neutral credits (§45Y and §48E) generally phase down in 2034 and are eliminated by 2036 based on when the project begins construction. However, the proposed Senate bill phases down tax credits for solar and wind on a significantly shorter timeline:

• Projects that begin construction in 2025 receive 100% of credit value
• Projects that begin construction in 2026 receive 60% of credit value
• Projects that begin construction in 2027 receive 20% of credit value
• Projects that begin construction in 2028 or later receive 0% of credit value

As a result, wind and solar developers are rushing to begin construction this year. Projects can establish start of construction through two well-established methods: the physical work test or the 5% safe harbor, after which they have four years to be placed in service. If developers don't start construction by the end of 2025, they will receive a significantly lower (or no) tax credits, which will have the impact of slowing new development from 2026 onward. Segue Sustainable Infrastructure forecasts 122 GW of project cancellations, resulting in $211 billion less investment in the grid as a result of the proposed bill.

There are several other important ways that wind and solar developer manufacturers are impacted by the proposed Senate bill:

• The credit for wind and solar leased property that would otherwise qualify for the residential credit under §25D is eliminated, which will cause developers to shift away from leases
• For §45X credits, wind components are not eligible for credits if produced and sold after 2027. Certain solar component manufacturers will also be impacted by the repeal of the provision regarding integrated components that are produced and sold after 2026, which potentially will limit the ability for manufacturers to stack credits from components that are integrated into larger products

Transferability is preserved, so long as the transferee is not a Specified Foreign Entity

There was no mention of transferability in the proposed Senate bill, meaning that tax credit transfers will be available for the same duration as tax credits. However, tax credits cannot be sold to Specified Foreign Entities (SFE), which is defined below:

• Meets any of the criteria outlined in Section 9901(6) of the William Thornberry National Defense Authorization Act (NDAA) for Fiscal Year 2021:
  
  • Is designated as a foreign terrorist organization by the U.S. Secretary of State under Section 219 of the Immigration and Nationality Act (8 U.S.C. § 1189)
  • Appears on the Treasury Department’s Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals and Blocked Persons
  • Has been linked to criminal activity resulting in a conviction, as alleged by the U.S. Attorney General
• Is identified as a Chinese military company
• Is listed due to the Uyghur Forced Labor Prevention Act
• Is named under Section 154(b) of the NDAA for FY 2024 (specifically, paragraphs 1–7 on page 47 of Public Law 118-31)
• Is a foreign-controlled entity, meaning it is owned or influenced (directly or indirectly) by:
  
  • The government of a covered nation (specifically China, Iran, Russia, or North Korea)
  • Its agencies or instrumentalities
  • Citizens or nationals of a covered nation
  • Entities organized or headquartered in a covered nation
  • Or any entity controlled by the above (with “control” defined as owning 50% or more of voting shares, capital, or beneficial interest)

The bill includes complex restrictions to avoid benefiting Foreign Entities of Concern. The current draft will be difficult to comply with, potentially causing a slowdown in future clean energy projects. However, we don’t expect significant market disruption in 2025

Complex Foreign Entity of Concern (FEOC) restrictions will apply to §48E, §45Y, §45Q, §45U, §45X, and §45Z credits to ensure that the benefit of tax credits does not accrue to China, Russia, Iran, or North Korea. 

We do not expect significant disruption to the market in 2025. Most PTCs and ITCs currently in the transfer market began construction before 2025 and therefore qualify for the legacy §45 and §48 credits, which are not subject to FEOC rules.

For the newer §45Y and §48E credits, there is a transition period for complying with FEOC rules (e.g., projects that begin construction by the end of 2025 are not subject to FEOC at the project level. Rules to ensure FEOC compliance at the taxpayer level begin in 2026 and become stricter in 2028).

Most concerning for clean energy developers is the annual compliance requirement to ensure that “specified foreign entities” do not benefit from tax credits. There are also payment restrictions to ensure that prohibited foreign entities do not earn a certain amount of dividends, interest, compensation for services, rents, royalties, or similar payments. For §48E credits, these compliance requirements must be tested for 10 years, and any breach results in a full recapture of the §48E credits. A recapture period this long and this challenging to comply with will make it harder to raise financing or sell tax credits from projects that require FEOC compliance. As a result, we expect the clean energy industry to lobby for clarifications and adjustments to the FEOC restrictions.

Conclusion

We expect a strong, continued mobilization from developers, banks, utilities, and corporations to advocate against the early phasedown of tax credits, particularly related to solar and wind, and to create a workable and simplified version of FEOC regulations.

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Key takeaways from the session: 

• Short-term clarity on the ability to transfer tax credits: Repeals were not retroactive, and will give the market stability to move forward on near-term transactions. We expect an uptick in buyer activity for 2025.
• The Senate historically moderates changes proposed by the House: However, four House Republicans declined to support the bill on May 16, and have demanded additional IRA rollbacks.
• The clean energy industry will be focused on clarifying FEOC (Foreign Entity of Concern) restrictions, and extending transferability:
  • The proposed FEOC restrictions will be almost impossible to administer, and their complexity will slow clean energy deployment. The Senate is expected to simplify the rules.
  • Clean energy developers will rush to start construction to secure FEOC exemption, and preserve ability to transfer credits.

Reunion's Andy Moon speaks with two of the most insightful voices in clean energy — Keith Martin (Norton Rose Fulbright) and Jigar Shah (formerly of the DOE Loan Programs Office) — for an inside look at the current policy environment and market sentiment, and a big-picture discussion on what’s next.

• Introductions to Keith Martin and Jigar Shah [00:58]
• Reunion’s report on transferable tax credits in 2025, drawing from in-depth interviews with buyers [03:36]
• Policy and tax updates by Keith Martin [05:40]
• Trends in the clean energy sector, based on Jigar Shah’s experience at the DOE Loan Programs Office [14:23]
• Discussion of trends in nuclear energy [20:00]
• Impact of tariffs on the clean energy industry [22:43]
• Impact of potential changes to the IRA, with a focus on tax credits [26:00]
• Discussion of letter from 21 Republican members of Congress in support of the IRA, and legislative strategies for the clean energy industry [29:58]
• Importance of making voices heard in-district, rather than in DC [31:41]
• How stakeholders can prepare in case IRA tax credits are repealed [36:15]
• How federal agencies including DOE and IRS will be able to operate in the face of cuts from DOGE [37:58]
• Over 90% of new energy capacity in 2024 was clean; why doesn’t the clean energy industry act more dominant? [44:00]
• Most counterintuitive predictions for the next four years in clean energy [47:46]
• Wishlist requests for the Trump administration [52:36]

On January 16, the Treasury and IRS published Notice 2025-08, which provides additional guidance on the Inflation Reduction Act’s domestic content bonus credit elective safe harbor. The Treasury and IRS introduced the elective safe harbor in May 2024 in Notice 2024-41.

According to the Treasury’s press release, the latest guidance “updates and builds upon the domestic content safe harbor that Treasury and the IRS published in May of 2024 that provides clean energy developers the option to rely on default cost percentages provided by [the] Department of Energy (in lieu of obtaining direct cost information from suppliers) to determine eligibility for the domestic content bonus.” 

Notice 2025-08 “reflects improved default values that more closely align with the characteristics and costs of applicable project components and manufactured product components in the marketplace, as analyzed by the Department of Energy.”

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Definitions and percentages updated for solar, battery storage, and onshore wind

Solar

Definitions

Notice 2025-08 split the solar PV table into two separate tables:

• PV ground-mount (tracking and fixed)
• PV rooftop (module level power electronics (MLPE) and string)

The guidance also renamed, redefined, and reclassified several applicable project components (APCs) and manufactured product components (MPCs).

Percentages 

In addition to updating several existing assigned cost percentages, the guidance added updated assigned cost percentages for PV modules that “incorporate c-Si [crystalline silicon] PV cells and wafers manufactured in the United States.”

These additional cost percentages were added to reflect “the significant cost premium” associated with domestic cells. Depending on the system, the premium for domestic cells can exceed 40%.

Although the applicable percentages for domestic cells increased, the applicable percentages for other manufactured product components MPCs decreased (to keep the total at 100). 

Battery storage 

Definitions

The guidance made certain adjustments to the characterizations of applicable project components and manufactured product components. For example, a “battery pack” is now a “battery pack/module,” and an “inverter” is now “inverter/converter.” It also provided a number of clarifying definitions.

Cost percentages

The guidance updated assigned cost percentages for manufactured products and manufactured product components for BESS. The updated cost percentages apply to “grid-scale BESS and distributed BESS” projects. 

The DOE made the change after collecting data from three different national laboratories instead of a single national laboratory survey, as well as “comprehensive interviews of manufacturers, installers, developers, and owners” of BESS technologies.”

Onshore, or “land-based,” wind

Definitions

The updated table for onshore, or “land-based,” wind includes minor adjustments to the characterizations of applicable project components and manufactured product components. “Steel or iron rebar in foundation,” for instance, has been renamed “steel or iron reinforcing products in foundation.”

Cost percentages

Notice 2025-08 did not change any associated cost percentages for onshore wind. The DOE, “using analysis from the national laboratories, found only minor changes in the component cost data” from Notice 2024-41.

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Offshore wind, hydropower, and other technologies remain out of scope

Offshore wind, hydropower, biomass, geothermal, fuel cell, and other technologies remained outside the scope of the elective safe harbor. Therefore, to qualify for the domestic content bonus, these project sponsors must rely on extensive calculations based on actual component costs. 

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Retrofits qualify for domestic content safe harbor

Section 4 of Notice 2025-08 allows qualifying retrofits to use the updated classifications and cost percentages to qualify for the domestic content bonus credit amount. Wind repowers are a prime example of a retrofit.

Projects must meet the the 80/20 rule and qualify for at least one of four credits, depending on the placed-in-service date: 

• PIS after December 31, 2022: §48 ITC or §45 PTC
• PIS after December 31, 2024: §48E ITC or §45Y PTC. These are the IRA’s “technology-neutral credits”

Importantly, any used components retained from an existing facility – the 20 in the 80/20 rule – are assigned a 0% value for calculating domestic content.

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Clarity on parking canopy, carport, and floating solar projects

The guidance expanded the definition of ground-mounted solar to include parking canopies and carports (“canopy steel racking structures”) and floating solar (“floating on a body of water”). 

Parking canopies and carports are considered fixed-tilt systems, while floating solar can be fixed-tilt or tracker systems.

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Relationship to elective, or “direct,” pay

As our team highlighted in a prior update, taxpayers who choose to monetize their tax credits – like the Section 45X advanced manufacturing production credit (AMPC) – through direct pay, may be subject to a “haircut” if they do not meet certain domestic content requirements. These taxpayers may utilize the domestic content safe harbor.

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Record-keeping

Taxpayers, including transferable tax credit buyers, who claim the domestic content bonus credit must meet the general recordkeeping requirements under Section 6001 to substantiate that the domestic content requirement has been met. 

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Timing and future guidance 

The updated domestic content tables apply to calculations made on or after January 16, 2025, and the Treasury signaled that they intend to update the safe harbor annually. Taxpayers may utilize the safe harbor tables included in Notice 2025-08 for projects beginning construction up to 90 days after the release of further guidance or after any future modification, update, or withdrawal of the updated elective safe harbor. For a comprehensive assessment of eligibility and compliance, refer to our 45X Due Diligence Checklist, designed to help navigate key regulatory and documentation requirements.

Dear Reunion clients and partners,

2024 was a breakout year for Reunion; we facilitated over $3.5 billion in tax credit transfers with a small but dedicated team of technology and clean energy finance experts. We are proud to have played a key role on the three of the largest tax credit transfers of 2024, including the sale of up to $870 million in 45X credits from First Solar to Visa.

We have ambitious plans for 2025. We will double our headcount, driven by growth in our core tax credit transfer business. In parallel, we will launch several new products aimed at improving the tax credit transfer process. Next up is a software product that we will announce later this month - stay tuned!

While policy uncertainty has been in the headlines, we recently conducted a tax credit buyer survey and the vast majority of our clients have not changed their tax credit purchase plans for 2025. We’ll share more data from our survey, along with updated pricing charts, in February.

Over the last year we spent a lot of time working with and learning from tax credit buyers and sellers, which has shaped our approach to the tax credit market. In the spirit of transparency and continuous improvement, we’d like to share ten lessons we learned in 2024.

Finally, we are grateful for all of our colleagues and peers in the industry— from solar developers and battery manufacturers, to tax directors at leading corporations— working hard to increase adoption of clean energy. We look forward to working with you in 2025.

Andy Moon, Billy Lee, and the Reunion team

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10 Lessons from 2024

Direct relationships with tax credit buyers is our secret weapon

Reunion works directly with buyers to ensure they are “ready to transact”; this typically means that the right stakeholders are on board, and internal approvals are in place.

If buyers start engaging on tax credits opportunities before they are ready, there is a high risk that the deal falls apart later in the process.

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Producing a diligence memo within a week of term sheet execution greatly reduces the potential for 11th hour surprises

On one of our very first deals in 2023, the seller unexpectedly walked away from the deal at the last minute due to a dispute around the calculation of the tax credit amount. This was a bad experience for the buyer, particularly because they had already paid a law firm to start diligence and draft contracts.

We changed how we do business as a result: as part of our offering, Reunion produces a diligence memo within a week of signing a term sheet. This enables the buyer to quickly understand the key issues before spending significant time and expense on the deal.

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Understanding “what is market” can help buyers and sellers move deals forward

Negotiations can go off the rails if buyers and sellers are far apart on key terms. The most contentious terms are related to tax proceedings, indemnities, and tax credit insurance.

Reunion keeps a database of anonymous key terms from 100+ transactions to help buyers and sellers reach a common understanding of “what is market.”

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Even on complex deals, there are ways to streamline the transaction process

Choosing the right legal counsel can make a world of difference. Select counsel with relevant transactional experience; recommendations from trusted sources can help. Some buyers involve accounting firms as an extra layer of diligence, and Reunion’s work is complementary. We efficiently prepare the data room and summary due diligence memo as a starting point, saving time and expense.

Reunion is more involved in the transaction process compared to typical brokers or marketplaces. Our hands-on approach has been important in driving our average time from term sheet to close to below 45 days.

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Very few buyers are committing to purchase tax credits generated in future years

Sellers with projects being placed into service in future years have a major pain point, given the lack of buyers willing to forward commit to tax credit purchases. Lenders are providing low advance rates on tax credit transfer bridge loans that do not have a creditworthy buyer in place (”naked TRABLs”).

Reunion is developing an offering to address this financing constraint; stay tuned for more details.

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Not all bids are equal; sellers should be cautious of anonymous bids

There are a lot of bids flying around the market. However, a proposal from a named counterparty with an outline of key terms is far more likely to close than an anonymous bid with only indicative pricing. Sellers should ask for more information during the bid stage; some anonymous bids do not have a committed buyer on the other end, or involve multiple intermediaries which impact price or certainty of close.

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Transactions with step-ups above 30% are becoming increasingly challenging to execute

In the world where there is lots of credit supply, insurers are choosing to focus their risk appetite on projects with lower step ups. Sellers with with high step-ups should think creatively about ways to insulate buyers from risk and be realistic about what the current market will bear.

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There are often multiple paths to satisfying a buyer’s diligence requirements

We worked on a PTC transaction where more than a dozen of the seller entities were JVs, and the buyer requested specific documentation from each JV that was not practical to collect. We offered a different approach that satisfied the buyer's diligence efforts in a way that was much less burdensome on the parties.

On multiple large transactions, the seller (or buyer) stated: “If Reunion was not involved, there was no way that we would have been able to satisfy the buyer’s diligence requirements and get the deal done.”

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Buyers must be ready to move quickly, as coveted opportunities are highly competitive

A buyer that has to wait for internal approvals will often lose fast-moving deals. It is critical for buyers to agree with internal stakeholders what criteria need to be satisfied for a transaction to be approved

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Prevailing wage and apprenticeship (PWA) documentation and compliance is complicated, frustrating, and expensive

An increasing number of projects require PWA compliance, which results in a large documentation burden and in some cases, an unexpectedly large compliance expense.

Reunion sees a big opportunity to simplify and reduce the cost of PWA compliance using software; stay tuned for our product launch in February.

The current state of the residential ("resi") solar market

Residential, or "resi," solar, like much of the clean energy industry, has experienced its fair share of ups and downs in the past several years. Despite the obstacles, the industry remains resilient, and its leaders are more committed than ever to continually improving the ecosystem.

Poised for strong growth

2024 was a period of contraction for the resi solar industry, with an estimated 26% decline in installed capacity. This decline is largely attributable to a higher-for-longer interest rate environment that significantly impacted the cost of capital across the value chain, coupled with the phase out of NEM 2.0 in California.

However, the resi solar market is expected to grow significantly through 2030.

Increasingly financed through third-party ownership (TPO) arrangements

The bulk of resi solar is sold to customers as a financed product. Just as with other consumer finance asset classes such as auto, financing options make the product more accessible to a majority of homeowners. Resi financing comes in two flavors: loans and third-party ownership.

For much of the past decade, the resi solar market was dominated by loans. However, due to the combined effects of rising interest rates and the introduction of ITC bonus credit adders only available to TPO, the industry has shifted to a largely TPO-heavy financing model, which generate ITCs that are eligible for transferability.

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Considerations for buyers evaluating resi solar third-party ownership (TPO) tax credits

Exempt from prevailing wage and apprenticeship (PWA) requirements

Resi solar is exempt from PWA given the size of the systems (generally 5-30 kilowatts), which are well under the 1 megawatt threshold. This in turn reduces complexity and scope of diligence (and can drive cost savings) relative to other projects requiring PWA compliance.

Easily structured around quarterly payments in arrears

Large resi solar developers operating at scale are placing systems in service on a daily basis, resulting in the creation of sizable portfolios of projects that are available for sale to tax credit buyers on a regular, recurring basis — often quarterly. This structure benefits buyers seeking to make payments quarterly in arrears to align with quarterly estimated tax payments, maximizing buyers’ internal rate of return.

Minimized placed-in-service risk

Project delays typically impact only a portion of a resi portfolio. In contrast, a large-scale project that delays placed-in-service beyond year-end has a binary risk that 100% of credits slip to the subsequent tax year.

Geographical diversity

Resi solar credit opportunities are sold as portfolios, which consist of many projects that are likely to be distributed across multiple geographies (i.e., across several states, territories, or counties).

This geographic distribution provides a natural hedge against unexpected weather or other events impacting all projects / tax credits in the portfolio (including unforeseen delays or recapture risk — see more below).

Recapture risk mitigants

Before jumping right into risk mitigants, let’s first explore tax credit recapture itself — what are the requirements?

The IRS requires that:

1. Property remains a qualified energy property for five years after being placed in service. A property ceases to be a qualified energy property when an asset is disposed of, or otherwise ceases to be an investment credit property (i.e., destroyed and not rebuilt, abandoned, or repurposed to sell something other than electricity).
2. There is no change in ownership of property during the five-year recapture period, which commences once a project has been placed in service.

Should a project fail to meet either of these requirements, the IRS will recapture the unvested portion of the ITC, which vests equally over a five-year period — 20% of the total ITCs claimed will vest on each anniversary of the project’s placed in service date.

With recapture risk now defined, how does resi solar measure up and what mitigants exist?

1. The most common reason for a solar project ceasing to be a qualified energy property is the destruction of the project coupled with a failure to rebuild. Given resi solar projects are highly dispersed in location, systemic destruction is extremely unlikely. Furthermore, even if projects within a portfolio are destroyed, there is no mandated rebuild time following an insurable event — the developer must simply demonstrate intent to rebuild and place projects back in service.
2. Resi solar customer agreements (leases/PPAs) commonly contain clauses that prohibit a change in ownership during the recapture period (i.e., customer cannot buyout system in first five years). Customers are generally contractually allowed to prepay contract at any time and/or request a contract transfer and reassignment to another homeowner, however, neither of these events constitutes a change in ownership.

As a tax credit buyer, conducting appropriate due diligence on all aspects of the transaction, including a review of items such as P&C insurance limits/exclusions, ongoing operations and maintenance support, and customer agreements, is paramount.

Reunion supports its customers through every step of the transaction process, including due diligence, and we invite all interested parties to reference our Section 48 ITC due diligence guide.

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Market sizing and opportunity

Using back-of-the-envelope math and conservative assumptions, we estimate that the resi solar market will generate approximately $6 billion in 2025 investment tax credits and continue to grow. Of course, not all of these ITCs will be transferred, as some developers may pursue traditional tax equity, retain the credits, or utilize direct pay, but as we note in our Q3 2024 market intelligence report, we expect roughly half of the clean energy tax credit market to be transferred.

This represents a sizable market for tax credit buyers with a strong potential for repeat transactions. The team at Reunion is excited to be working with many of the largest and most established resi solar developers in the space, and we look forward to supporting new and existing buyers in every step of the transaction process.

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Frequently asked questions

Business model

What is the most common business model for resi solar developers operating at scale?

There are many different business models, but most scaled resi solar developers operate using an EPC/Sales Dealer model.

How does an EPC / Sales Dealer model work?

Under this model, the developer partners with EPCs (licensed contractors performing engineering, procurement and construction work) who design and install solar projects that are in turn purchased by the developer.

Occassionally, EPCs also employ salespeople to acquire new customers (i.e., homeowners). Most often, though, this work is subcontracted out to sales dealers employing individual sales reps at scale.

Customer acquisition

Who acquires new customers and what is the process?

Sales reps acquire new customers (typically single-family homeowners) via door-to-door sales. This conversation often involves looking at homeowner’s current utility bill and comparing future utility payments with and without solar. Developers often require upfront customer savings before moving forward with a customer and engaging an EPC.

How does a sales rep get paid?

Sales reps are paid a commission on each successful sale by the sales org employing him/her. EPC knows what it will get paid by the developer for each system configuration in each market and what it is willing to install the system for (the “redline”). Any amount over the redline goes to the sales rep as commission.

System construction and purchase

How is the system installed?

EPC procures equipment that is compliant with developer’s approved vendor list (including any manufacturer warranty requirements), designs and installs system subject to developer’s guidelines, and works with local utility to ensure system achieves permission to operate (PTO).

Who estimates the system production?

Developer typically partners with one or multiple approved system design tool platforms that are integrated into its systems. The production estimation engine behind these tools is often tested and validated by an independent engineering firm and published in a report.

What happens once the system is installed?

Developer “acquires” fully installed system from EPC at pre-determined price based on system configuration and utility market, aiming to achieve a minimum project-level rate of return on expected system cashflows (customer payments, net of expenses). Developer typically funds EPCs in two milestone payments to align incentives — a majority at install complete and the balance at PTO.

Developer third-party ownership

Who owns the system?

Developer owns the system and executes a lease or PPA with the homeowner that governs the monthly billing and terms of service which commonly include an operations and maintenance (O&M) obligation and a performance guarantee (PeGu) obligation.

Who is responsible for system repairs?

Developer is liable for any operations and maintenance (O&M) issue or system underperformance that is not the direct fault of the customer.

The IRA has fueled clean energy deployment

The Inflation Reduction Act has had a significant impact on clean energy deployment in the U.S., leading to accelerated growth among solar, wind, battery storage, and other clean energy technologies:

• The two-year post-IRA period has seen $89 billion in investment in new, US-based clean energy manufacturing, versus $22B in the two years preceding the IRA (see Figure 1)
• Investment in clean energy production and industrial decarbonization is $161 billion since the passage of the IRA, a 43% increase from the comparable pre-IRA period

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Americans overwhelmingly support clean energy

Clean energy is now a major part of the US economy, employing over 3.5 million workers. Since 2020, the clean energy industry has added 400,000 new jobs, significantly outpacing the rest of the energy sector.

The federal solar investment tax credit was first passed under the George W. Bush administration via the Energy Policy Act of 2005, and for the last 20 years there has been a looming threat that this tax credit will be removed. But it has persisted, because it has been highly effective in driving solar adoption, and solar energy is extraordinarily popular among Americans.

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The IRA has growing, bipartisan support

Similarly, the Inflation Reduction Act has bipartisan support:

• In August 2024, a group of 18 Republican Congress members wrote to a letter to Speaker Mike Johnson saying: “Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing.” Speaker Johnson responded that when making changes to the IRA, “you’ve got to use a scalpel and not a sledgehammer.”
• The total clean investment of $493 billion in the two-year post-IRA period has flowed into all 50 states, but over half of that has gone to Republican states

We have reason for optimism that the major provisions in the Inflation Reduction Act will persist. It’s unlikely that a majority of Congress will support a significant repeal of a law that is driving new jobs and significant investments in clean energy. Repealing the IRA after it has been in force for over two years will also upend many private businesses, which have made billions in investments under the anticipation that the law will be in force for a decade, if not substantially longer.

Furthermore, the final house race was called December 2nd, landing at 220 Republican seats and 215 Democrat seats. Given that 218 votes are required to form a majority and pass legislation, Republicans have a very thin margin for defections - only two.

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Buyers and sellers remain active in the market for 2025 tax credit and beyond

In the tax credit transfer space, we continue to see a heavy dose of activity that is, in fact, ramping up, particularly from buyers wanting to lock in 2024 and 2025 tax credits before any potential changes.

The team at Reunion remains highly optimistic about a clean energy future and stand ready to support all existing and new customers.

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