The transferability provisions under the Inflation Reduction Act (IRA) in the US “will unlock billions” in capital for clean energy, said financing firm Evergrow as it claimed the first tax credit transfer transaction.
The investment tax credit (ITC) covers a behind-the-meter PV project, with a capacity of under 1MW, at a commercial and industrial location in Connecticut, Evergrow CEO James Richards told our sister site PV Tech.
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Transferability was introduced as part of the IRA in order to widen the pool of potential tax equity investors, by making it easier to buy and sell ITCs and other tax credits, such as production tax credits (PTCs).
It covers solar, energy storage and other clean energy technologies, although energy storage is not eligible for a PTC.
The project in question was developed by Davis Hill Development, the seller of the ITC, while the buyer has not been revealed.
Prior to this, these credits could only be utilised through complicated tax equity investment structures.
The US Treasury released guidelines on the transferability mechanism in June this year, including information on a government portal, on which all clean energy companies wishing to make their accrued tax credits transferrable, will need to be registered. That is expected to be fully launched by the Internal Revenue Service later this year, Richards said.
“We think transferability will unlock billions of net new capital for clean energy because it’s much easier for investors and buyers to buy credits now compared to how it was before the IRA,” Richards said.
However, the new transaction method is still complex and a significant challenge for smaller-scale projects.
“For large utility-scale projects, this is not an issue, but for our customers (distributed generation developers), it’s a big issue. That’s why we’re investing heavily in streamlining and digitising the entire process from end-to-end so that we can make this type of financing accessible to everyone who needs it.”
Evergrow was set up as a platform to buy and sell clean energy tax credits using transferability.
Our publisher Solar Media is hosting the 10th Solar and Storage Finance USA conference, 7-8 November 2023 at the New Yorker Hotel, New York. Topics ranging from the Inflation Reduction Act to optimising asset revenues, the financing landscape in 2023 and much more will be discussed. See the official site for more details.