Tax equity season is in full swing for 2022, and a number of regulatory and worldly developments make this season different than previous years' fourth quarters.

Changes this year are highlighted by the IRA (Inflation Reduction Act of 2022) passed on Aug 16, 2022 putting renewable energy and solar on a path to broader adoption in the United States.  Though this is an exciting development, with many details to come, the question we keep receiving is, “Where does that leave us today?”

The short answer is it provides us with certainty of a 30% Investment Tax Credit (ITC) rather than the 26% we were at prior to its passing.  Further, given the 10 year extension, it minimizes the concern about reductions in future years, giving rise to added pressure to consummate transactions by year-end.

Read more about the basics of solar tax equity in our previous blog, What Is Solar Tax Equity?

The biggest benefit for C&I projects specifically will come when we receive clarity around the transferability of the credit. Though the credit will transfer at a discount and likely not include depreciation, the pricing will likely be north of 80% and possibly in the 90% price range relative to the face value of the credit, which currently is monetized around 35% to 50% including depreciation and cash.  

This 30% to 55% increase makes a huge difference for tax investors looking to purchase credits to offset their year-end tax bill and changes the market for solar tax equity. 

But that still does not address how we close out solar tax equity transactions for 2022.

There is pent up demand from investors for tax equity as the year comes to a close due to projects being delayed as a result of constraints globally on materials, high prices for goods, the war in Ukraine, and impending inflation. Investors are still primarily looking to invest via the partnership flip model and the process to organize those transactions is largely the same, lengthy and costly. 

We have seen the use of sale-leaseback transactions making a comeback and there are a number of investors willing to support these transactions. 

This, we believe, is one of the better opportunities for C&I solar projects as the legal costs for these transactions are a fraction of those paid for a partnership flip transaction.  Furthermore, all cash flow is preserved for the benefit of the project owner which can further be applied to improve debt coverage or increase equity returns. Lastly, the investors are looking to close quickly as the year is nearing completion and the process to close and fund is fairly simple and quick.

Ultimately, the market has changed in 2022 for solar tax equity and investors in tax equity transactions are starting to be able to take advantage of the benefits.

The market for solar tax equity is ripe, and with governmental support, is aging like a fine wine. 

Photo credited to DepositPhotos.com