The clean energy tax credit transferability market reached up to US$11 billion in the first half of 2024 and could hit US$25 billion by the end of the year, according to US sustainable finance company Crux.
Its data, which it gathered in the 2024 Mid-Year Market Intelligence Report, tracked US$6.8 billion of specific transactions in the first half of the year, which it said corresponds to between US$9 billion and US$11 billion of total transactions closed. The claim is based on Crux’s own data set, which includes publicly announced deals and Crux’s own commercial activity. The company says its data represents around 65-75% of market activity.
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Crux said that the tax credit transferability market has “outpaced expectations” from when the Department of Treasury released guidance on the scheme in June 2023. The market has overperformed in terms of “volume, diversity of technology investments, and price consolidation”, Crux said, “which is also good news for project developers and manufacturers trying to sell their credits and for corporate taxpayers seeking to manage their tax liabilities.”
The tax credit transferability facility was introduced under the Inflation Reduction Act (IRA). It allows clean energy project developers and equipment manufacturers to sell their Investment Tax Credits (ITC) or Production Tax Credits (PTC) to third parties for cash, with a view to expanding the access of private investment into the clean energy sector. Crux’s data found that US$9 billion of transfers were made in 2023.
At the time of announcing the guidance, the Treasury and Internal Revenue Service (IRS) said that the transferability facility would make it easier for smaller tax entities – like small businesses – and government or non-profit entities with a specific tax status to access IRA incentives. To some degree, Crux’s data bears this out; it said that the tax credit buyers in H1 2024 range from individual family offices to Fortune 50 companies.
Earlier this month, PV Tech Premium heard that the transferability market offering is “simpler” – and the base of buyers “significantly larger” – than traditional tax equity.
IRA transferability market trends
The majority of the transactions in H1 2024 were for established technologies such as utility-scale solar PV, energy storage systems and wind power, as well as advanced manufacturing credits.
A notable example of this type of deal was bp-owned solar developer Lightsource bp’s financing of a 288MW utility-scale PV project in Texas using the transferability facility.
Crux said the current supply of tax credits for utility-scale projects has been either committed or already purchased, but demand is still growing. As such, buyers are likely to turn to other, more “sophisticated” credit types such as renewable natural gas (RNG), distributed generation, residential solar projects and additional advanced manufacturing 45X credits.
Some solar manufacturers have already availed themselves of 45X credits through the transferability scheme; in May, US solar cell manufacturer Silfab completed a transferability transaction with energy software company Schneider Electric to support the buildout of its 1GW tunnel oxide passivated contact (TOPCon) solar cell production facility in South Carolina.
Crux said that credit prices for both ITC and PTC transactions have been higher so far in 2024 compared with 2023. PTC deals averaged over 95 cents compared with 94 in 2023 and ITC deals averaged 92.5 cents compared with 92 in 2023. Average deal sizes also rose considerably, from US$20 million for ITC and US$60 million for PTC in 2023 to US$55 million and US$85 million respectively.
The report also said that some buyers are already looking to 2025 transferability deals, which tend to trade at around 1 to 3 cents discount compared with 2024 deals.
Alfred Johnson, co-founder and CEO of Crux said: “This market has continued to grow in size, technological diversity and depth, driving billions of dollars of new private sector investments into energy infrastructure and domestic manufacturing.
“These investments have created jobs and driven a new wave of American technological innovation. We are seeing new participants enter the market every month, market standards taking shape and all facets of the market becoming more transparent and efficient.”
