RENEWABLE energy or located in an energy community ( additional 10 % increase on the base credit ).
MONETIZATION OF CLEAN ENERGY TAX CREDITS
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 .
CONCLUSION
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 .
ABOUT THE AUTHORS
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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