Making sense of the tax credit landscape in renewables
Jul 26, 2023
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Bryen Alperin from Foss & Co. discusses the tax credit market post Inflation Reduction Act, the surge in renewable projects, shift from traditional tax equity to transferability, recapture risks, and future growth in solar and emerging technologies.
The Inflation Reduction Act (IRA) has reshaped the tax credit market, leading to a surge in available tax credits for renewable projects.
Contrasting traditional tax equity with transferability models reveals the complexities and simplifications in accessing tax credits, emphasizing the need for strategic risk mitigation.
Deep dives
Evolving Landscape of Tax Credits Post-IRA
The podcast delves into the aftermath of the Inflation Reduction Act (IRA) and its significant impact on the tax credit market, especially in the renewable energy sector. The introduction of the IRA upended the funding and financing of renewable projects, leading to a surge in available tax credits. This resulted in a massive growth in the renewable segment, with renewables constituting over 60% of the firm's total volume.
Traditional Tax Equity vs. Transferability Market
The discussion contrasts traditional tax equity structures with the emerging transferability market in allocating tax credits to investors. Traditional tax equity involves complex ownership structures, requiring investors to have actual partnership interests in projects to access tax credits efficiently. In contrast, the transferability provision allows credits to be sold to separate taxpayers, simplifying transactions and accounting. The benefits and drawbacks of each approach are analyzed, highlighting the need for due diligence and risk mitigation strategies.
Future Trends and Growth in Tax Equity Market
Looking ahead, the podcast anticipates continued growth in solar, storage, and emerging technologies like carbon capture and green hydrogen supported by the IRA provisions. The year 2024 is expected to witness a rise in new projects leveraging tax credits, presenting more opportunities for investors. Despite potential risks such as a recession impacting tax appetite, the outlook remains positive with investors showing keen interest in acquiring tax credits.
Bryen Alperin, a partner and managing director at Foss & Co., joins senior reporter Andrew Vitelli to discuss the tax credit market and how developers and investors are approaching the slew of new incentives created by the Inflation Reduction Act (IRA).
#InflationReductionAct, tax equity vs. transferability, #recapture
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