Unlikely Allies | Page 3

RENEWABLE energy or located in an energy community ( additional 10 % increase on the base credit ).
The typical sponsors or developers of electric generation projects may not have sufficient taxable income capacity to utilize clean energy tax credits efficiently . Prior to the IRA , sponsors and developers in this position often would seek special investors , referred to as tax equity investors , that have sufficient taxable income to utilize a project ’ s tax credits in the year in which they arise . Tax equity investors typically contribute cash capital to a project holding company in exchange for a preferred equity interest , the economic return of which is comprised of a small cash return and a non-pro rata allocation of the tax credits and accelerated depreciation deductions from the project . The tax equity investor is willing , in part , to accept tax attributes rather than cash as its economic return , and , from the perspective of the sponsor / developer , the tax equity investor represents relatively inexpensive financing .
Tax equity investments , however , bring significant complexity and additional costs to an electric generation project .
The IRA permits taxpayers to sell clean energy tax credits to unrelated third parties for cash , which arguably presents a less complex and more efficient way for a sponsor or developer to unlock the value of clean energy tax credits . Although the market for credit transfers is in its infancy , the current price per credit typically ranges from 88 cents to 92 cents per dollar of credit , meaning that the credit buyer should recognize an economic spread , before transaction expenses , between 8 % and 12 % on the typical credit purchase . Credit buyers usually require the same suite of protections from a credit seller that a tax equity investor would require from a sponsor / developer , including an opinion of counsel confirming the validity of the purchased credits and an indemnity for recaptured or disallowed credits , backstopped by a tax credit insurance policy .
Partnerships that seemed unlikely a few years ago have forged ahead , as common goals are bringing different sectors of the energy industry together . O & G producers are distinctively positioned to benefit from the implementation and utilization of battery storage systems and renewable technologies to power their operations at all stages of oil and gas recovery . There is a growing anticipation of continued development of hybrid facilities and growth in the battery storage sector with the opportunity to benefit from certain tax incentives . Optimism has flourished
for renewables and battery storage as O & G companies embrace these unlikely partners in meeting global climate commitments .
Danielle Garbien , a partner in Bracewell ’ s New York office , represents developers , private equity investors , energy companies and offtakers in a wide range of complex energy financing , development and infrastructure projects with a focus on power , renewable energy and energy storage . Her practice also includes providing advice on transactions involving carbon capture and sequestration , as well as renewable energy transactions , including solar , wind and hydrogen development and offtake arrangements .
Steven Lorch , a partner in Bracewell ’ s New York office , advises publicly held businesses and private clients on U . S . tax aspects of a wide range of renewable energy projects . These include planning related to the production tax credit and investment tax credit for wind and solar , and the utilization of tax equity structures related to these credits . He also advises clients on the tax aspects of other energy transition technologies , including energy storage , renewable natural gas and renewable fuels .
Jared Berg , an associate in Bracewell ’ s Houston office , works with public and private companies in mergers and acquisitions and general corporate matters . He is also at the forefront of the energy transition working with oil and gas companies , developers of renewable energy generation and renewable natural gas processing facilities , cryptocurrency miners and other interested parties on novel and complex commercial transactions , project development and other arrangements designed to achieve his clients ’ ESG and business goals .
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