Introduction:

Welcome to the Green Credit Collective, where our mission is to facilitate the seamless exchange of clean energy tax credits, connecting developers and buyers to foster sustainability and financial efficiency. In this post, we explore the challenges of the legacy clean energy tax credit system and the scale of the opportunity going forward.

The Challenges of the Legacy Clean Energy Tax Credit System:

Historically, the tax equity partnership model was the predominant monetization mechanism for clean energy tax credits. While tax equity has benefits for large utility-scale developers, it comes with drawbacks including high initial costs, complex reporting demands, and project ownership risks. These hurdles restricted the pool of credit buyers to a few major banks, and effectively excluded small to medium-sized credit sellers. This exclusivity created a significant barrier, hindering the full potential of clean energy projects from being realized.

The Transferability Solution

With the passing of the Inflation Reduction Act (IRA) last summer, transferability emerged as a transformative alternative to Tax Equity. Clean energy developers can now directly sell nine different types of federal tax credits to unrelated buyers for cash. Transferability opens a new avenue for tax credit buyers and sellers, many of whom were previously unable to participate in the traditional tax equity model.

The Scale of the Opportunity:

According to Congressional Budget Office (CBO) reports, the IRA provisions allocate $369 billion for renewable energy credits and incentives until 2033, with $216 billion earmarked for corporate tax incentives. Notably, CBO estimates are extremely conservative compared to research conducted by Credit Suisse (estimates 3x higher than CBO) and Goldman Sachs (estimates 5.5x higher than CBO).

Assuming a conservative linear 10-year disbursement in tax incentives for CBO, Credit Suisse, and Goldman Sachs estimates, we expect a range of approximately $20 billion to $120 billion in new tax credits hitting the market annually. On the other side of the market, U.S. corporations paid $425 billion in income tax in 2022. In this scenario, between 5% and 28% of every corporate federal income tax dollar owed needs to be matched with a renewable energy project to meet the demand this year. Even over a 10-year span, assuming 2% compound growth in the corporate income tax pool, between 4% and 23% of 2032 corporate federal income tax dollars would need to be matched with a clean energy development project. Under any of the wildly varying estimates above, this represents a tremendous opportunity for new corporate buyers and will require much more than the limited number of banks that historically dominated the market.

Two Birds, One Stone:

At Green Credit Collective, our goal is to find, educate, and support participants that can finally access this market under transferability. Many corporations are either voluntarily instituting or may soon be required to disclose environmental impact goals. Clean energy tax credits present an opportunity for Corporate buyers to support ESG goals and save money on taxes simultaneously, as credits are typically sold at a discount to face value. Using the CBO, Credit Suisse, and Goldman Sachs market estimates and applying various possible discount scenarios to the market*, we can observe that between $1.7 billion and $18 billion in annual tax savings will become available to attract new buyers.

* discounts are listed for illustrative purposes and are determined by a number of market forces.

Green Credit Collective Value Proposition:

To tackle these challenges, Green Credit Collective offers a simplified yet thorough approach that unlocks new opportunities for small to medium-sized development projects. Transferability offers a streamlined process, attracting new corporate buyers seeking to meet sustainability and financial goals. We ensure smooth transactions and expert guidance throughout the process. Contact us today at info@greencredco.com to learn more about how we can help you navigate the clean energy tax credit landscape.