Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Economy

Investors Are Betting Clean Energy Tax Credits Will Survive

They’re still agreeing to swap subsidies into 2025 and beyond.

Stacks of tax credits.
Illustration by Simon Abranowicz

The Inflation Reduction Act will direct billions of dollars to subsidize clean energy in the form of tax credits. But those tax credits need to be bought and sold, requiring a whole industry to stand up between developers and corporate taxpayers looking to reduce their tax liabilities.

A key pillar of this emerging industry is Crux, which functions as a marketplace for these deals, which said Monday in its mid-year market intelligence report that it expects to see $20 billion to $25 billion worth of these transactions by the end of this year, with $9 billion to $11 billion having already occurred in the first half of the year, surpassing the $7 billion to $9 billion in total transactions Crux estimated for last year. Crux has been working to put itself quite literally at the center of this quickly growing industry, raising tens of millions of dollars from both technology venture capital investors as well as the renewables industry.

Clean energy tax credits that subsidize both investment and production of renewables are nothing new. What is new is that the Inflation Reduction Act made them “transferable,” meaning that the taxpayer who was able to reduce their tax liability didn’t have to be directly involved with the project in order to get the tax benefits, they could simply buy them.

This has drawn a wider range of participants into the market, Alfred Johnson, Crux’s co-founder and chief executive officer, told me. Transferability was written into the tax credits “in part to make up for the low demand that is inherent to the tax equity market” when only certain taxpayers can participate, he said. “So far, we have seen family offices, companies of all shapes and sizes. We’ve seen food and ag companies and retailers and different kinds of financial institutions and manufacturers.” The Financial Times even reported that cash-rich (and therefore tax liability-rich) oil and gas companies were buying tax credits from renewable developers.

In the past, the tax credits accrued to the actual investors and developers in projects, who often didn’t have enough taxable income to fully benefit from the available credits, so banks would then often be brought in to own some of the project and reap the tax benefits. This was a complicated system that would seize up if, for some reason, the taxable corporate income of banks disappeared, like during a global financial crisis. “Clean energy investment has long been constrained by the scarcity of tax equity investors relative to the addressable market,” the law firm White and Case wrote in a note to clients.

Now, with transferability, tax credits can be essentially sold for cash. But it’s not quite a dollar-for-dollar transfer. According to Crux’s data, pricing for these deals has improved slightly in the first half of the year, going up from 94 cents for a dollar of production tax credits in 2023 to 95 cents in 2024, and from 92 cents for investment tax credits to 92.5 cents. Deals have also gotten larger on average, although some of this is due to more tried-and-true projects coming to market earlier in the year, namely wind, solar, and storage, whereas last year saw a more diverse range of often smaller deals, including advanced manufacturing credits, which were newly introduced by the Inflation Reduction Act.

The investment bank Evercore estimates that the total addressable market for tax credit trading could get to $100 billion annually by 2030. And make no mistake: Those tax equity investors are doing it for the money. While some deals are struck as part of a company’s sustainability or climate change mandates, when Crux surveyed buyers and their advisors, 78% said they made these deals to reduce their effective tax rates, compared to 58% who said they supported clean energy development and 40% for other sustainability goals.

While many of the questions around the next year are around whether or not the IRA and its tax credit regime will survive the outcome of the election in November — and dealmakers who work on this stuff every day seem confident that it will, for the most part — the shape of corporate liabilities could change in next year or beyond. Donald Trump has mused to Bloomberg about bringing down corporate tax rates to 15% from their current level of 21%. The Crux report notes that even debating such a bill can end up “stifling demand” for tax credits.

But looking forward, Johnson notes, the market appears to be confident that those who have tax liabilities in 2025 and even 2026 think tax equity will be there for them. “People are electing to commit on a production tax credit that goes well out into the future, or an investment tax credit that will be earned in 2025, or 2026,” Johnson said.

“I think that’s indicative of the market’s interpretation of risk, right? If the market thought that those 2026 credits would not be around, then you wouldn’t see as much as that,” Johnson said. He also noted that both the production and investment tax credits have typically been extended (although the uncertainty about extension can weigh on developers and tax equity investors) under just about every partisan configuration of Capitol Hill and the White House.

“You could certainly imagine scenarios, both from macroeconomic and a policy perspective, where the amount of taxes paid by companies went up or went down. But I think we are well covered right now in the market at the current volumes,” Johnson said.

Blue

You’re out of free articles.

Subscribe today to experience Heatmap’s expert analysis 
of climate change, clean energy, and sustainability.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Politics

Trump Promised Deregulation. His New Law Would Regulate Energy to Death.

The foreign entities of concern rules in the One Big Beautiful Bill would place gigantic new burdens on developers.

Power lines and Trump's tie.
Heatmap Illustration/Getty Images

Trump campaigned on cutting red tape for energy development. At the start of his second term, he signed an executive order titled, “Unleashing Prosperity Through Deregulation,” promising to kill 10 regulations for each new one he enacted.

The order deems federal regulations an “ever-expanding morass” that “imposes massive costs on the lives of millions of Americans, creates a substantial restraint on our economic growth and ability to build and innovate, and hampers our global competitiveness.” It goes on to say that these regulations “are often difficult for the average person or business to understand,” that they are so complicated that they ultimately increase the cost of compliance, as well as the risks of non-compliance.

Keep reading...Show less
Blue
Politics

AM Briefing: The Megabill Goes to the House

On the budget debate, MethaneSAT’s untimely demise, and Nvidia

House Republicans Are Already Divided on the Megabill
Heatmap Illustration/Getty Images

Current conditions: The northwestern U.S. faces “above average significant wildfire potential” for July • A month’s worth of rain fell over just 12 hours in China’s Hubei province, forcing evacuations • The top floor of the Eiffel Tower is closed today due to extreme heat.

THE TOP FIVE

1. House takes up GOP’s megabill

The Senate finally passed its version of Trump’s One Big Beautiful Bill Act Tuesday morning, sending the tax package back to the House in hopes of delivering it to Trump by the July 4 holiday. The excise tax on renewables that had been stuffed into the bill over the weekend was removed after Senator Lisa Murkowski of Alaska struck a deal with the Senate leadership designed to secure her vote. In her piece examining exactly what’s in the bill, Heatmap’s Emily Pontecorvo explains that even without the excise tax, the bill would “gum up the works for clean energy projects across the spectrum due to new phase-out schedules for tax credits and fast-approaching deadlines to meet complex foreign sourcing rules.” Debate on the legislation begins on the House floor today. House Speaker Mike Johnson has said he doesn’t like the legislation, and a handful of other Republicans have already signaled they won’t vote for it.

Keep reading...Show less
Yellow
Podcast

Shift Key Summer School: What Is a Watt?

Jesse teaches Rob the basics of energy, power, and what it all has to do with the grid.

Power lines.
Heatmap Illustration/Getty Images

What is the difference between energy and power? How does the power grid work? And what’s the difference between a megawatt and a megawatt-hour?

On this week’s episode, we answer those questions and many, many more. This is the start of a new series: Shift Key Summer School. It’s a series of introductory “lecture conversations” meant to cover the basics of energy and the power grid for listeners of every experience level and background. In less than an hour, we try to get you up to speed on how to think about energy, power, horsepower, volts, amps, and what uses (approximately) 1 watt-hour, 1 kilowatt-hour, 1 megawatt-hour, and 1 gigawatt-hour.

Keep reading...Show less
Green