Unlocking the Potential of Renewable Energy with Tax Credits
In the quest to support renewable energy developers and investors, the U.S. government offers a variety of investment tax credits (ITC) and production tax credits (PTC), collectively known as tax credits (TCs). These credits are designed to reduce tax liability, but their value can be limited in certain circumstances. If there is no taxable income, the credit remains unused, neither impacting cash flow nor providing value to the investor.
The Inflation Reduction Act: A Game Changer
The Inflation Reduction Act (IRA) of 2022 extended these tax credit programs and introduced nine new technologies, further enhancing the support for renewable energy investments. One of the most significant features the IRA adds is transferability—the option to sell credits for cash. This new feature makes the renewable energy tax equity market more accessible to a broader range of developers and corporate taxpayers.
Opportunities in Tax Credit Transfers
Tax credit transfers present attractive opportunities for both sellers and buyers. Sellers can finance clean energy investments, while buyers can reduce their tax payments and further their corporate climate and clean energy commitments. Financial institutions have been active buyers of these tax credits, but there is a large pool of potential buyers among corporations looking to reduce taxes while supporting clean energy initiatives.
Clarity and Certainty in the Transfer Market
The U.S. Treasury has released the final rules on how transfers work, providing clarity and certainty for participants in this new transfer market. The total addressable market of potentially transferable energy tax credits is estimated to be $47 billion in 2024, with projections rising to over $100 billion annually by 2030.
Conclusion
The extension and enhancement of tax credit programs and the introduction of transferability mark a significant step forward in supporting renewable energy investments. By unlocking the potential of tax credits, we can drive the transition to a cleaner, more sustainable energy future.
Ask about World Kinect’s Transferable Tax Credit Advisory to learn more and see how this new initiative could help you save money on your tax bills, support renewable energy development, and maybe even fund future decarbonization initiatives.