Clean Energy Financing: Unleashing Optionality and Flexibility with Transferable Tax Credits

The Inflation Reduction Act (IRA) introduced the ability to sell and transfer tax credits. This is a true game-changer for the renewables industry as it will accelerate the development of more clean energy projects. The transferable tax credit market opens up new opportunities for many entities to participate in the clean energy economy. In recent blogs, we compared this new avenue for investing in renewable energy projects with traditional tax equity investments and reviewed what types of companies should consider becoming renewable energy investors in this new market. Here, we will delve deeper into how the optionality and flexibility of transferable tax credits could direct more capital toward renewable energy projects that focus on integrating cutting-edge sustainability initiatives.

Opting to Fund Better Projects

Conventionally, renewable energy projects are sited, designed, and operated to comply with local, state, and national requirements related to environmental preservation, resource conservation, and social justice (among others). Occasionally, a developer may go above and beyond these minimum requirements if it provides an opportunity to gain community support and avoid opposition. Baseline efforts would be greatly enhanced across the industry if more widespread recognition or additional factors incentivized robust decarbonization methods.

Transferable tax credits introduce a new layer of optionality and flexibility into the clean energy investment landscape that could inspire more developers to design high-impact projects. With this new method of financing, corporate investors are no longer confined to traditional tax equity partnerships and can more easily diversify their portfolios by procuring transferable tax credits directly from a wide range of asset owners. With this flexibility, corporations have more agency in aligning clean energy investments with their broader sustainability goals. They can opt to support projects that excel in leveraging regenerative agriculture practices or those with high additionality and emissionality scores.

What Makes a Project ‘Better’

Each renewable energy tax credit stems from a project with tangible branding elements. Companies that wish to do more than just check a box on their upcoming investor relations report can actively seek out projects that go above and beyond by supporting the environment and local community. These forward-thinking developers are utilizing responsible manufacturing processes, supporting local economies, and guaranteeing safe working environments while continuously calculating and reducing their own net environmental impacts. Here are some key differentiators for high-quality renewable energy projects that generate more impactful tax credits.

Regenerative Business Practices – Agrivoltaics

Leading solar developers are leveraging regenerative business practices, such as agrivoltaics – the combination of photovoltaic arrays and agricultural land uses –  to optimize their net impact. When developing community solar farms, regenerative business practices are markedly better for the health of the soil and provide more long-term economic and educational benefits to hosting communities.

High Additionality and Emissionality Scores

Supporting projects with high additionality and emissionality scores ensures that your investment drives real change and reduces global greenhouse gas (GHG) emissions. Additionality allows organizations to prove that their actions have environmental benefits beyond what would have occurred naturally or without their intervention. As more companies enter the renewable energy space and seek to minimize their carbon footprint, investing in projects with higher additionality and emissionality scores is more important than ever.

When selecting a project with a higher emissionality score, the megawatt-hours (MWhs) of renewable electricity generated have a significantly greater impact in negating GHG emissions. Where a project is sited and the time of day that it generates energy plays a big role in that project’s emissionality. For example, supporting the development of a project in a region still heavily dependent on fossil fuels will yield a much more significant impact on emissions per MWh than funding a project in an area already saturated with the same type of renewables.

Optionality and Flexibility of Transferable Tax Credits

It is becoming more accessible than ever for companies to demonstrate their preferences for projects that leverage regenerative agriculture practices and high additionality and emissionality scores. A company committed to supporting low-income communities or reducing the carbon footprint of the region within which it operates can do so through procuring tax credits from specific renewable energy projects. This approach can bolster a company's sustainability targets while also fostering local economic development and job creation. In this way, the transferable tax credit market expands financing capacity. This expanded capacity can, in part, support the financing of more projects in underserved communities and emerging markets.

Maximize Impact by Exploring Your Project Financing Options

The transferable tax credit market is a game-changer for corporate sustainability. With more optionality and flexibility, companies can positively impact the environment as they drive key business objectives forward. As the clean energy transition accelerates, transferable tax credits could become an increasingly indispensable tool for companies that hope to maximize their impact in realizing a sustainable future.

If you’re interested in purchasing one of these tax credit opportunities from a trusted developer known for going above and beyond, contact Pivot Energy today.