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Transferability ITC deals for 1GWh+ of US battery storage: ‘market has grown faster than anyone expected’

By Cameron Murray, Andy Colthorpe
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Blackstone and Foss & Company have completed transferability investment tax credit (ITC) deals for BESS projects in California and Texas, a market which has grown “faster than anyone expected” according to tax credit ecosystem Crux.

The separate deals for two battery energy storage system (BESS) projects totalling 1,184MWh of energy storage come after Crux’ CEO Alfred Johnson told Energy-Storage.news in an interview last week: “There were US$7-9 billion of transferable tax credit transactions, already one-third the size of the traditional tax equity market. The market has definitely grown faster than I or anyone else expected.”

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Developer Arevon and Blackstone have closed an equity, debt and investment tax credit (ITC) financing package worth US$350 million for the 200MW/800MWh Condor BESS in California, set to start operations in Q2 2024 – read more detailed coverage of this project in our separate news story here.

Tesla is providing its Megapack BESS and operation & maintenance (O&M) while Rosendin Electric has engineering, procurement, and construction (EPC) responsibilities. The financing includes a commitment from investment bank Stifel Financial Corp to buy ITCs.

Concurrently, tax equity specialist investor Foss & Company announced a US$118.5 million ITC transferability deal for the Longbow BESS in Brazoria County, Texas, a 174MW/384MWh, 2.2-hour system, owned by oil and gas firm Tokyo Gas America.

Construction started in the current quarter and the BESS will be online in the summer of 2024, and was developed by Clean Capital Partners.

Transferability

Transferability was brought in as part of the Inflation Reduction Act to make it easier for a wider range of investors to invest in clean energy projects using tax credits.

Prior to it, complex tax equity structures had to be created to leverage tax credits, narrowing the pool of investors to those with the relevant expertise. Now, equity investors in a project can simply sell the tax credits to another company using a government portal that tracks projects. The buyer of the tax credit can then monetise it at the end of the tax year.

Discussing a new report into the transferability market published by Crux, the tax credit ecosystem’s CEO Alfed Johnson told Energy-Storage.news that there was no question it had worked in achieving that so far when asked.

“Absolutely! Before, the US$20 billion traditional tax equity market was 85% spoken for by the 10 largest players like Bank of America, JP Morgan etc,” Johnson said.

“With transferability, we are seeing a much broader base of demand, from public companies, industrial players, private companies and family offices which are all very different from traditional tax equity investors.”

Another tax credit transferability ecosystem platform, Evergrow, claimed the first use of the transferable ITC in October 2023, for a small behind-the-meter (BTM) solar array in Connecticut. A month later, Arevon meanwhile laid claim around the same time last year to carrying out ‘one of the first tax credit transferability deals’, for a solar-plus-storage project in the US, leveraging US$191 million in ITCs and production tax credits (PTCs) for its Vikings project, also in California. Vikings pairs 157MW of solar PV to a 150MW/600MWh battery storage system.

Deal structured to simplify tax credit monetisation, Blackstone says

Blackstone said its preferred equity investment in the project has been structured to make monetisation of tax credits simpler than through traditional tax equity financing.

One of the world’s biggest alternative asset managers, Blackstone’s Credit & Insurance division was formed last year through the merging of its corporate credit, asset-based finance and insurance groups.

The parent company’s interests in the energy storage space also include ownership of Aypa Power, a developer based in Canada which was acquired in 2020 and soon put to work in the wider North American market, including projects in development or acquired in CAISO, the Midwestern MISO market and ERCOT in Texas.

In November last year, Aypa Power secured US$550 million in debt and tax equity financing for a combined 700MWh of BESS projects in California and Texas.

Energy-Storage.news’ publisher Solar Media will host the 5th Energy Storage Summit USA, 19-20 March 2024 in Austin, Texas. Featuring a packed programme of panels, presentations and fireside chats from industry leaders focusing on accelerating the market for energy storage across the country. For more information, go to the website.

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