Evergrow, a financing firm, has achieved a noteworthy milestone by completing the first tax credit transaction utilizing the recently enacted transferability provisions under the Inflation Reduction Act (IRA) in the United States. This pioneering transaction pertains to a solar photovoltaic (PV) plant located in Connecticut, marking a significant development in the nation's clean energy financing landscape.
The investment tax credit (ITC) was applied to a behind-the-meter PV project with a capacity of under 1 megawatt (MW) situated at a commercial and industrial site in New England's state of Connecticut. While Evergrow facilitated this transaction, the identity of the buyer remains undisclosed. The project itself was developed by Davis Hill Development, the entity responsible for selling the ITC.
The introduction of transferability provisions within the IRA is aimed at broadening the pool of potential tax equity investors. This is achieved by simplifying the process of buying and selling ITCs and other tax credits, such as production tax credits (PTCs). These provisions encompass various clean energy technologies, although it's important to note that energy storage does not qualify for a PTC.
Previously, the utilization of these tax credits required intricate tax equity investment structures, making the process cumbersome and less accessible. In June of this year, the U.S. Treasury released guidelines outlining the mechanics of the transferability mechanism. As part of this framework, a government portal is set to be launched by the Internal Revenue Service later this year. This portal will serve as a platform for all clean energy projects seeking to make their accrued tax credits transferrable.
Despite the newfound ease in transferring tax credits, this transaction method remains complex and poses significant challenges for smaller-scale projects, as highlighted by Evergrow CEO James Richards. He pointed out, “Transaction costs are one of the biggest challenges. These financings are expensive to do: lawyers, accountants, and many third parties all at the table. This makes it prohibitively expensive for many distributed generation (DG) projects to raise tax financing.”
Richards emphasized that Evergrow is committed to streamlining and digitizing the entire process, making it more accessible to a wider range of projects. He believes that the adoption of transferability provisions will result in a substantial increase in available capital for clean energy projects in the United States. In his words, “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.”
