Organizations can now procure federal clean energy tax credits on LevelTen’s Platform, which has approximately 600 clean energy project developers with billions of dollars in tax credits to sell
Seattle, WA — April 23, 2024 – Today, LevelTen Energy announced the launch of the LevelTen Tax Credit Marketplace to facilitate the purchase and sale of federal clean energy tax credits, a key provision of the Inflation Reduction Act (IRA) that is expected to unlock hundreds of billions of dollars to support the United States’ energy transition. LevelTen’s newest marketplace enables corporations, tax advisors, and sustainability advisors to procure tax credits from an extensive network of approximately 600 clean energy developers in the U.S. It also includes streamlined management of requests for proposals (RFPs), deal diligence, and transaction execution. Furthermore, tax credit buyers have the option to leverage LevelTen’s full suite of transaction infrastructure – multiple clean energy marketplaces, transaction software, and data dashboards – to simultaneously achieve their emissions reduction goals and lower their tax burdens by procuring a power purchase agreement (PPA) or renewable energy certificates (RECs) in addition to tax credits.
A Maturing Market is Ripe for New Corporate Tax Investors
IRA tax credits give investors a dollar-for-dollar reduction in their federal tax liability in exchange for providing financing to develop renewable energy projects and other clean energy investments. The IRA’s “transferability” rule allows tax credit sponsors, including clean energy project developers, to “transfer” their tax credits by selling them for cash to corporations seeking to lower their tax burden. Many clean energy developers sell their tax credits because they lack the adequate tax burden to use them efficiently.
However, corporate demand for IRA tax credits is presently smaller than tax credit supply. “Demand for tax credits is off to a good start, but we need a lot more to revolutionize project financing in the way the IRA intended. Developers are eager for more tax credit investors, and the clean energy transition is at stake,” said Patrick Worrall, Vice President of Tax Credit Marketplace at LevelTen Energy. In 2023, the first year that the IRA tax credit market existed, over $2.5 billion of IRA tax credits were sold under the new transferability rules, according to publicly announced deals.
Tax Credit Buyers Stand to Gain Financial and Sustainability Benefits – But Barriers Remain
Most corporations understand the financial value of tax credits. They provide a low-risk way for purchasers to directly reduce their federal tax liability, and immediately claim tax reductions. This is reason enough for many to consider them. Yet, tax credit deals aren’t moving quickly enough. At present, two key challenges slowing down tax credit deals are:
First, buyers need help sourcing and filtering high-quality, low-risk tax credits. Tax credit quality and risk vary based on technology type, developer experience level, and project location. Tax credits are only delivered after the project —such as a utility-scale solar farm— is placed in service or begins production. But many obstacles can jeopardize timely project completion and tax credit delivery. “Unlike other tax credit platforms, LevelTen’s Platform includes project maturity scores that factor in development milestones including interconnection status, helping tax credit buyers understand the likelihood of that project getting completed on time,” said Worrall. “We have been sourcing high-quality projects since 2018. All the developers and their projects are already enabled on our Platform.”
There are also two key risks that buyers need to be aware of after the tax credits have been purchased: excessive credit transfer and recapture risk. “Buyers can see their tax reductions reversed and can incur penalties should the IRS challenge and disallow a tax credit. Further, actions by the owner of the eligible project can result in a “recapture” by the IRS, forcing the forfeiture of financial benefits,” said Worrall. “LevelTen and our network of advisors understand the protections that buyers should seek against these risks. We have a long history facilitating clean energy term sheets and contracts for our corporate customers, on deals worth over $14 billion.”
Second, not enough corporations understand the sustainability benefits of tax credits, or how tax credit purchases can fit into broader sustainability strategies. Tax credit purchases advance the energy transition by providing clean energy developers with critical capital to develop new solar, wind, battery storage, and other types of clean energy projects. This impact is significant, as 30-60% of clean project financing comes from tax credits.
“Tax credit buyers make it possible for new clean energy sources to get added to the grid. Without these buyers, the projects won’t get built. A second-level benefit we see is corporate buyers using the profit from their tax credit transaction to support other sustainability programs,” said Worrall, “For example, tax credit profits can be considered against the cost of renewable energy purchases, which have increased in price by nearly 13% over the past year. While these are separate transactions, the overall cost of being a good steward of the environment comes down.”
How LevelTen’s Tax Credit Marketplace Works
LevelTen’s Tax Credit Marketplace enables buyers – including corporations, tax advisors, sustainability firms, and energy advisors – to create tax credit RFPs based on the amount of credits sought, type of technology desired, and other criteria that may be important to the buyer. LevelTen socializes the RFP to its extensive network of project developers and other entities with tax credits available to sell. LevelTen collects the proposals, contextualizes them with market data and intelligence, and delivers recommendations in a standardized format that helps buyers or their advisors shortlist attractive projects and ultimately select the best offer. “It can be overwhelming for a buyer to evaluate all the options and select a project that best meets their needs,” said Worrall. “By working with LevelTen, buyers or their advisors get access to the whole tax credit market. We claim 90% market penetration of renewable developers active in the US. We drive compelling offers to our customers through a competitive process, and we support their process with data and expertise they need to select projects.”
Beyond the tax credit RFP, LevelTen will continue to bring more ways to initiate tax credit transactions on the LevelTen Platform.
Tax Credits Are a Key Driver of the Clean Energy Transition
Tax credits are critical to the U.S.’ clean energy transition because developers rely on them to build new projects. To achieve net zero carbon emissions by 2050, the U.S. needs at least four times the amount of solar and wind generation as there is today, according to the Low-Carbon Resources Initiative. Currently, solar and wind generation account for approximately 200 GW of capacity, and LCRI estimates that between 800 gigawatts (GW) to 3,700 GW are needed. The impact of an efficient tax credit marketplace should not be underestimated.
“LevelTen Energy has been bringing together clean energy buyers, advisors, and developers since our founding, and now we’re enabling them to transact in more ways with the launch of the LevelTen Tax Credit Marketplace,” said Worrall. “LevelTen’s mission is to accelerate all of the transactions and decisions involved in bringing new carbon-free energy projects to life. That includes tax credit transfers, asset acquisitions and divestitures, power purchase agreements, and the sale of granular certificates. By bringing together the entire carbon-free energy ecosystem into a single online platform, and providing the software, data and analytics all parties need to move faster, we are advancing everyone’s shared goal: accelerating the energy transition.”
For more information or to download LevelTen’s free guide, visit: www.leveltenenergy.com/taxcreditmarketplace.
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