Invest in Tax Credits to Meet Your Cash and Profit Goals
Reunion helps corporate tax and treasury teams de-risk and acquire clean energy tax credits.
Reunion Curates Tax Credits That Meet Your Price, Timing, and Risk Requirements
Certain buyers are focused on maximizing tax savings and favor §48 ITCs. Other buyers look to minimize risk and complexity and favor §45 PTCs or §45 AMPCs.
Tax credit deals can often be structured so buyers do not have to invest out of pocket compared to their regular estimated tax payments to the IRS.
§48 ITC: Maximize tax savings
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Buyers who want to maximize tax savings often purchase ITCs. ITCs typically trade at a 6% to 10% discount, though small or complex transactions can carry larger discounts.
The example below assumes that the tax credit buyer commits to purchase $100M in tax credits in Q1, and therefore offsets $25M in tax payments each quarter. The buyer negotiates to pay for the tax credit in Q3; delayed payments are available in certain circumstances.
§45 PTC: Minimize risk and complexity
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Buyers who want to minimize risk and complexity typically opt for PTCs, which are generally more straightforward to diligence than ITCs and do not carry recapture risk.
Payments are typically made quarterly in arrears for credits as they are generated. Each quarter, usually around the buyer’s estimated tax payment date, the seller will provide documentation showing how many credits were generated in the preceding quarter, and the buyer will pay for them. PTCs between buyer and seller with a similar tax year (e.g., calendar year) usually result in a structure where the buyer does not need to go “out of pocket” to make PTC payments.
Current-year PTCs typically trade at a 4% to 6% discount, though larger discounts are sometimes available — for example, if a buyer commits to a multi-year stream of PTCs.
The example below assumes that the tax credit buyer commits to purchase $100M in PTCs in Q1 and offsets $25M in tax payments each quarter. The buyer negotiates to pay for the tax credit in Q3; delayed payments are available in certain circumstances.
§45X AMPC: Minimize risk and complexity
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Buyers who want to minimize risk and complexity also consider AMPCs, which are also production-based credits that do not carry recapture risk. As with PTCs, payment is typically quarterly in arrears.
AMPC pricing has been more varied than PTC pricing, though current-year AMPCs from large, established sellers with strong balance sheets have been trading at a 4% to 6% discount. Larger discounts are sometimes available — for example, if a buyer commits to a multi-year stream of AMPCs.
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The Reunion Transaction Process
Reunion guides buyers through every step of the transaction process, ensuring a seamless and de-risked transaction.
Identify and Secure Tax Credits
- Reunion curates high quality tax credits for corporate buyers and we often have access to tax credit opportunities before they hit the wider market.
- Reunion assists buyers in putting forth indications of interest using our standard forms.
Preliminary Due Diligence
- Reunion conducts a preliminary due diligence screen (”fatal flaw analysis”) to surface issues upfront.
- Buyers can then decide whether they would like to proceed. Our goal is to avoid spending time and expense on deals that have a low probability of reaching the finish line.
Closing Due Diligence and Risk Management
- Reunion leads a comprehensive due diligence process on behalf of the buyer while collecting and organizing due diligence documentation and producing a summary memo highlighting any issues.
- We help buyers ensure that risks are mitigated through measures such as indemnities and/or tax credit insurance.
Contract Negotiation
- Reunion provides a standard tax credit transfer agreement (TCTA) as a starting point.
- We provide market intelligence to drive an efficient negotiation process, reducing time and transaction costs.
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Reunion's seasoned team has developed a curated developer community to ensure availability of the highest quality projects and a derisked transaction process.
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FAQs
Frequently Asked Questions
Whether you are experienced with tax credits or buying them for the first time, we have the expertise to help. Here are some common questions we get from buyers.
Should I buy an investment tax credit (ITC) or a production tax credit (PTC)?
Well, it depends! Buyers who want to maximize tax savings typically opt for ITCs, while buyers who want a simpler transaction typically opt for PTCs.
In 2023, ITCs above $10M in transaction size with strong risk mitigation in place were generally trading for $0.91 to $0.93, while PTCs were trading for $0.94 to $0.96. ITCs trade at a wider discount because the due diligence is more involved and ITCs are subject to recapture by the IRS if the underlying asset is abandoned, foreclosed, or placed out of service during the 5-year recapture window.
Is there a deadline for purchasing credits for the current tax year?
You can buy a credit for the current year, up until the date that you file taxes for the current year. For example, a calendar year filer seeking to buy credits for 2024 has until April 15 of 2025 (or October 15, if they file an extension) to buy credits for the 2024 tax year.
What is the timing of when I need to pay cash for the credits?
Tax credits are generally purchased after they are generated. Buyers may commit to purchasing a credit in advance, but typically will only pay cash after the credit has been generated.
Timing of payments is typically a topic of negotiation between buyer and seller. The buyer prefers to pay as late as possible, while the seller would prefer to receive cash as soon as possible. If a seller agrees to delay receipt of payment, it may result in a lower discount to the buyer to compensate for the cost of capital.
The IRS regulation 6418 clearly states that a taxpayer can offset estimated tax payments with tax credits they purchase or “intend to purchase.” This has opened the door for structures in which buyers can achieve the full benefit of the credit before cash outlay. Many buyers seek to structure payments that coincide or occur after their quarterly estimated tax payment dates. For an in-depth discussion of the timing of credits, please read our article here.
What kind of due diligence is required?
For a §45 PTC, buyers should validate that the project qualifies for the tax credit. Due diligence includes confirming that electricity was generated and sold to a third party while also confirming the placed-in-service date of the project.
For a §48 ITC, buyers should validate that the project qualifies for the tax credit and that the risks of tax credit recapture are mitigated. Due diligence includes confirming the cost basis of the project for purposes of calculating the tax credit, typically through a cost segregation analysis by a reputable third-party accounting firm. Buyers should also substantiate any step-up in cost basis, and confirm the placed in service date of the project.
For projects that began construction after January 29, 2023 buyers should validate compliance with prevailing wage and apprenticeship (PWA) requirements. Buyers should also validate that projects qualify for any bonus credit adders such as energy community, domestic content, or the LMI adder (awarded to projects that serve low-income communities that meet certain requirements).
Reunion Accelerates Investment Into Clean Energy
Reunion’s team has been at the forefront of clean energy financing for the last twenty years. We help CFOs and corporate tax teams purchase clean energy tax credits through a detailed and comprehensive transaction process.
