Developers of renewable energy projects have capitalized on a burgeoning market, selling unused U.S. tax credits to other companies. A recent study, buoyed by legislation in 2022 that facilitated such trades, reveals that this market now commands a value between $7 billion and $9 billion.
President Joe Biden's climate law, designed to attract trillions of dollars in investments to steer the economy away from planet-warming fossil fuels, played a pivotal role. The legislation included tax breaks for builders of renewable projects, and notably, the government made some of these new credits tradable.
This move aimed to infuse fresh capital into projects that historically depended on a select group of banks with the capability to invest directly and benefit from associated tax breaks.
In the first six months since tax authorities provided guidance for these trades in June of the previous year, deals were struck transferring credits worth an estimated $7-9 billion, as calculated by the online platform Crux.
This substantial figure represents more than one-third of the annual $20 billion typically raised through tax equity for such projects in the United States. The Rhodium Group think tank reports a total national investment of $64 billion in clean energy and transportation in the three months leading up to September.
Crux, serving as an intermediary platform, allows developers to showcase project details while enabling potential buyers to browse and submit bids. A survey conducted by Crux in late 2023, with 150 responses from developers, corporate buyers, banks, and brokers, identified deals worth $3.5 billion. Further analysis of accessible information led to the $7-9 billion estimate for the 2023 tax year.
Crux CEO and co-founder, Alfred Johnson, a former Treasury Department staffer, expressed, “This market has scaled faster than anyone anticipated.” Buyers engaged in these transactions paid an average of 92-94 cents on the dollar for credits. Platforms like Crux disclosed fees ranging from less than 1% to 3% of the credit value, emphasizing the one-time nature of credit sales. Johnson noted, “We saw behavior like a bidding war on the platform,” and anticipates a surge in new buyers in 2024. The development underscores the evolving landscape of renewable energy finance, with an increasing number of entities participating in the trade of tax credits, catalyzed by legislative initiatives promoting sustainable projects.
