The Innovative Tax Play Your Business Can't Afford to Miss

The Innovative Tax Play Your Business Can't Afford to Miss
Photo by Alexander Grey / Unsplash

Corporations are always looking for creative ways to raise capital and fund strategic initiatives. Well, the Inflation Reduction Act (IRA) just opened up an unprecedented new financing opportunity that businesses need to get on their radar - transferable clean energy tax credits.

What's the Big Deal?

The IRA significantly extended and expanded a suite of federal tax credits for investing in renewable energy, energy storage, clean hydrogen, carbon capture, sustainable aviation fuel, and more. We're talking billions in potential credits available for things like:

  • Solar projects (Investment Tax Credit)
  • Wind farms (Production Tax Credit)
  • Battery storage systems (Investment Tax Credit)
  • Carbon capture facilities (Credit for Carbon Capture/Sequestration)
  • And much more, including credits for:
    • Clean hydrogen production
    • Advanced nuclear power facilities
    • Biogas/renewable natural gas
    • Sustainable aviation fuel
    • Domestic manufacturing of energy components

Rather than just claiming these credits against their own tax liability over years, the real game-changer is that the IRA allows companies to transfer all or a portion of any of 11 clean energy credits to a third-party in exchange for tax-free immediate funds, so that businesses can take advantage of tax incentives if they do not have sufficient tax liability to fully utilize the credits themselves. This unlocks the full value of the credits immediately as a capital source.

The First Movers Are Already Cashing In

This transferability provision is more than just theory - major corporations are already taking advantage in pioneering deals. As reported by Utility Dive, Schneider Electric recently purchased advanced manufacturing tax credits from solar panel maker Silfab Solar, generating upfront cash for Silfab to fund expansion of its U.S. operations. Crux released a study in January that found between $7 billion and $9 billion worth of tax credit transactions took place last year and later predicted the market will reach $85 billion annually by 2031.

The Innovative New Financing Structures

With the market for transferable tax credits rapidly evolving, companies and investors are getting creative with new financing models to maximize the value. Law firm White & Case has done a deep dive exploring some of the most promising emerging structures:

  • Hybrid Flips: Combining traditional tax equity with credit transfers
  • Step-Up Accommodations: Enabling tax basis step-up and depreciation benefits
  • Direct Transfers: Transferring credits directly to underwriters or syndicators

The Window Is Open

While the IRA's tax credit provisions have been capturing headlines, the transferability component may be the real game-changer for unleashing new capital flows into clean energy and sustainability. Between the credits themselves and the innovative financing structures being developed around them, this is an opportunity corporations can't afford to miss.

Companies should be evaluating how the IRA's transferable tax credits could benefit their business and getting ahead of this transformative new financing frontier. The early movers are already capitalizing - don't get left behind.