A new study by Crux Climate says the US allowing renewable energy companies to sell federal tax credits for cash under the Inflation Reduction Act (IRA) is turning out to be a multibillion-dollar market. In 2023, this transferable tax credit market grew to between $7 billion and $9 billion.
The market intelligence firm believes this $7 billion in investments in transferable credits helped lift total investment in clean energy tax attributes to $30 billion, on top of an estimated $23 billion in tax equity in the market last year.
In its Transferable Tax Credit Market Intelligence Report, Crux notes that close to 50% of transactions covered in its dataset had a face value of $50 million or less. Average credit price for deals under the Investment Tax Credit (ITC) was $0.92/dollar while for Production Tax Credit (PTC) it was $0.94/dollar which is 'better-than-expected.' Pricing depends on several factors such as the deal size, credit type, technology type, project location, among others.
Of the $3.5 billion of tax credit transactions covered by the Crux report, representing 30% to 50% of the market in 2023, analysts found advanced manufacturing facilities and bioenergy projects as popular as tax credits from solar projects.
Guidance of the transferability measure under the IRA was introduced by the US Department of the Treasury in June 2023. It allows businesses not using elective pay to transfer all or some of the eligible credits in a taxable year to a 3rd party. The rationale was that it would allow clean energy projects to be built more quickly and affordably.
The Crux report also points to the importance of intermediaries as banks, brokers, tax advisors, technology platforms and the like to build trust and transparency in this new market, and close the gaps between buyers' and sellers' expectations. It claims that sellers got a higher price on credits sold through Crux or intermediated transactions 45% more often than through a bilateral deal.
The Co-Founder and CEO of Crux, Alfred Johnson, sees the market growing significantly in the future as well, calling transferability an essential tool supporting efficient clean energy project finance. He added, "We are just beginning to see what this new market has to offer and the impact of the investments into critical clean energy projects."
In 2024, it believes a lot would depend on the US government finalizing guidance for calculating tax credits in the newly eligible applications to determine the price. Analysts see the price convergence boosting average credit pricing for newer credit types, and solar and wind credit pricing could decline a bit, especially in the early part of the year.
The complete report by Crux is available for free download on its website.
US solar manufacturer First Solar recently announced selling its Advanced Manufacturing Production Tax credits under the IRA worth up to $700 million to Fiserv in 2023. It plans to undertake a similar exercise in 2024 (see First Solar To Transfer IRA Tax Credits To Fiserv).