Hello there, fellow solar energy enthusiasts; welcome back to my blog. Today, I’m excited to delve into some interesting findings from a survey done, detailing the 2023 and 2024 market for transferable tax credits in relation to solar projects. This trend is rapidly transforming the landscape for solar companies, and I believe it’s crucial for anyone interested in installing solar panels for their home or planning a solar array for the home to understand this development.
Under the Inflation Reduction Act (IRA), solar project tax credits can be transferred from the project owner to other commercial establishments bearing tax liabilities. This act effectively simplifies the process, reducing the tax credit’s new owner’s need to partner in the solar project.
Now, let’s talk numbers. In 2023 alone, there were roughly $7 billion to $9 billion in transferable clean energy tax credit transactions pushed by the IRA. Furthermore, the future looks bright, with a prediction of over $80 billion in solar tax finance by 2031— largely coming from these transferable tax credits.
Solar, along with solar-plus-storage capacity, reportedly contributed to approximately one-third of the entire 2023 transferable credits. This is a clear indication of the significant role solar companies play in this evolving market.
Interestingly, in 2023 most transactions fell into the $11 to $25 million bracket, surpassing the total of all transactions ranging from $51 million to $1 billion. There was also a sizable number of deals under $10 million. This suggests the new transferability options are providing an advantage, enabling smaller deals to get a foot in the door of the market.
With the market still in its nascent stage, there’s quite a variation in the intention of participants. A majority of sellers (55%) plan on monetising transferable tax credits in 2024, while 36% anticipate transactions in 2023 or had already done so.
Buyers and sellers are facing unique challenges in this market, with complexities of pricing and rigorous due diligence on the buyers’ side, and the quest for transparency on the sellers’ side. Banks and brokers, acting as intermediaries, see potential growth in the market, provided regulatory guidance and enhanced transparency are introduced.
In an effort to mitigate risks associated with such transactions, parties resort to insurance policies and sponsor guarantees. These solutions aim to safeguard against issues such as recapture, qualification issues, errors, potential financial liabilities, and ensure compliance.
The closing prices for tax credits varied depending on several factors. Commercial and industrial solar projects closed at roughly 90.7 cents on the dollar, utility-scale solar transactions settled around 92 cents, and energy storage projects achieved about 94 cents on the dollar.
In essence, the results of this survey shed light on how the solar industry is integrating with this new market, and the role of transferable tax credits in shaping the future of solar. This, in my view, will greatly influence the decisions of individuals and businesses who are exploring solar panels for their homes or considering a solar array for their homes.
Until next time, stay sun-powered, friends.
Original Article: https://pv-magazine-usa.com/2024/01/23/solar-and-storage-accounts-for-one-third-of-transferable-tax-credit-market-in-2023/