‘Growing interest’ in US microgrids attracts tax equity investor Foss & Company to US$30 million Maryland deal

Around the same time, the Paskenta Band of Nomlaki Indians partnered with Open Access Technology International (OATI) to integrate advanced microgrid controls into a two-part solar and battery energy storage system (BESS) project in Northern California, to enable the tribal community to operate independently of the local utility grid during outages or periods of grid instability.

Microgrids are attracting institutional tax equity investment as project sizes reach viable thresholds and developers gain operational experience.

Foss & Company, a tax equity investor that has deployed over US$11 billion since 1983, recently closed financing for a microgrid project combining solar and energy storage—one of the first such deals to secure institutional tax equity backing.

Announced 8 July, Foss & Company closed a US$30 million Section 48 tax equity investment in a microgrid system from energy as a service (EaaS) provider AlphaStruxure, located in Montgomery County, Maryland, US, designed to integrate solar PV and battery storage to power a public transit facility and its transitioning electric bus fleet.

The microgrid is expected to achieve commercial operations in August 2026 and “is projected to generate more than 6,000MWh of clean energy annually.”

The transaction marks Foss & Company’s first partnership with AlphaStruxure and represents the firm’s entry into the microgrid sector.

Alperin, managing director, and Brkovic, vice president of energy & infrastructure project finance at Foss & Company, discuss the factors that made this investment possible, how they approached valuation of the energy storage component, and the outlook for distributed energy resources (DERs) in tax equity markets.

Project scale and developer experience

Foss & Company claims that it has historically moved into emerging technologies as they mature. After the Inflation Reduction Act (IRA) passed, the firm quickly entered standalone battery storage.

“We’re always looking to where there may be good opportunities in new spaces,” Alperin says. “After the IRA initially, that was batteries. We were able to jump in pretty quickly on those. But, we’ve been monitoring all the other technologies that are continuing to mature and advance.”

Alperin and Brkovic highlight three factors made this microgrid project viable: a creditworthy developer with operational experience, sufficient project size, and proven technology components.

“Some of the earlier microgrid opportunities we saw were just a bit too small for a lot of our investors who tend to be large banks, insurance companies, and Fortune 500 corporates,” Alperin says. “Generally, we’re typically transacting in the US$20 million and above tax credits range, but really ideally closer to US$50 or US$100 million.”

The project met these thresholds while incorporating familiar technologies—solar and BESS—in a new, to Foss & Company, configuration.

“A lot of the technology, although it’s in a maybe new or different format than we’ve been accustomed to in our past deals, still included energy storage and solar, which we’re very familiar with,” Alperin notes.

Before the IRA, batteries qualified for tax credits only if a certain percentage of their charging came from a co-located renewable energy source (typically solar)—a requirement that added compliance complexity. The IRA’s standalone storage eligibility eliminated that constraint.

“In the post-IRA world, we know there’s no question that the battery qualifies for the tax credits. In some ways, it has simplified (the process) a little bit because we don’t have to worry about power flowing from the grid back to the battery,” Alperin says.

Foss evaluated how the BESS enabled the microgrid to operate independently from the grid. “We had our construction engineer on site looking at the storage component and how the two assets would interact,” Brkovic says.

Alperin notes that because microgrids use the same tax credit as standalone solar or storage, the structuring approach was familiar. “The counterparties were strong, and there were no significant tax risks outside of our typical underwrite.”

Distributed energy portfolio expansion

Foss & Company established its renewables platform approximately nine years ago with distributed generation solar. The firm is now expanding into other distributed energy or distributed generation (DG) technologies, particularly energy storage.

“The DG space has continued to be one of our primary business areas,” Alperin says. “We’re looking now at expanding that beyond what was primarily solar into other technologies. Obviously, there’s a lot of energy storage that’s going to get built in this country.”

If the solar tax credit expires as scheduled, Foss expects energy storage, both utility-scale and distributed, to represent a larger share of its investment volume. The firm is also monitoring geothermal, fuel cells, and potentially small or micro nuclear projects.

“We might see more distributed battery portfolios popping up,” Alperin highlights. “A lot of the solar developers we’ve worked with over the years are starting to diversify their business and develop more batteries as well.”

Energy storage offers portfolio diversification benefits. Solar projects face risks from hail, windstorms, and other weather events, while batteries housed in metal containers are more resilient to those threats.

“Some of our investors that have been doing a lot of solar over the last few years are excited about batteries because they see it as a way to diversify. Batteries tend to be pretty impervious to wind and hail. They do come with their own risks—thermal events or flooding—but it’s a way to diversify,” Alperin says.

Battery projects can also offer slightly higher returns than solar, partly due to their relative novelty. “It can be a way to get a little bit of additional returns,” Alperin notes.

Market adoption varies by investor type

Microgrids are gaining traction but remain less common than utility-scale projects among the largest tax equity investors.

“The big banks—the top four or five in the country—may still prefer to do utility-scale projects because they can get more scale with fewer projects,” Alperin says. “But for groups like Foss that are syndicators able to navigate the complexities of these DG projects more efficiently, there is growing interest in microgrids.”

Alperin adds, “I wouldn’t say that (microgrids are) as popular as the utility-scale solar projects, but we’re probably seeing some increased competition from other investors over time on these kinds of assets. But it’s a very opaque market, so it’s hard to say.”

Foss & Company’s microgrid financing demonstrates that distributed energy systems can attract institutional tax equity when they meet requirements for project size, developer quality, and technology maturity. As energy storage deployment accelerates and developers build operational track records, microgrids may become more common in tax equity portfolios.

“We’d love to continue to transact in this space,” Brkovic says.