Barely a year old, the transferable tax credit market is already getting crowded with marketplaces.
- The top line: LevelTen Energy, a provider of renewable transaction infrastructure, just launched its own clean energy tax credit marketplace to facilitate the purchase and sale of federal clean energy tax credits. As at least the sixth such marketplace to pop up since federal clean energy tax credits kicked off in June 2023, the new LevelTen platform’s launch is emblematic of how fast the new market is gaining steam.
- The market grounding: The Inflation Reduction Act’s transferability clause allows clean energy developers to sell tax credits for cash. Analysts have estimated that companies made between $4 billion and $9 billion in deals in the latter half of 2023 alone, a number that could double to nearly $20 billion by the end of 2024, according to one analysis. With its new marketplace, LevelTen Energy is joining the likes of platforms such as Crux, Basis Climate, Ever.green, and Reunion, among others.
- The current take: Patrick Worrall, vice president at LevelTen Energy, told Latitude Media that the market’s primary need right now is demand, rather than supply. “The original tax equity market was around $20 billion per year. The new availability is somewhere between $40 and $60 billion of additional tax credits,” he said. “That demand needs to come into the market.”
With its new platform, LevelTen Energy, which already has marketplaces active for power purchase agreements and mergers and acquisitions, allows potential buyers to create a Request for Proposals with their desired credit amount and technology type. It then aims to facilitate a match among the roughly 600 clean energy project developers in its network.
“When the IRA was signed, it became obvious that we needed more corporations to enter the tax investment market,” said Worrall. “We started getting calls from our developers, saying ‘Hey, aren’t you going into this?’”
Evidently, the requisite enthusiasm for tax credit transfers is there. The challenge right now, Worrall said, is to make the transactions as smooth as possible for corporations that want to purchase the tax credits with these platforms, so that demand grows as fast as the supply. In March, the Internal Revenue Service said that requests for project registrations had surpassed 45,000 and that almost all the projects were applying for transferability.
LevelTen says that what sets it apart from other credit platforms is the fact it includes project “maturity scores that factor in development milestones including interconnection status,” which helps “tax credit buyers understand the likelihood of that project getting completed on time.”
Current tax credit prices are around 90 to 95 cents per dollar, meaning the corporations buy the tax credit at that price and get a dollar reduction in their taxes. Since tax credits are only delivered after the project enters production, known technologies such as solar, wind, and storage, as well as manufacturing tax credits, are generally considered more “high-quality.”
“Some of the corporations are new to the market, we want to make it as easy and low-risk as possible,” said Worrall. “This market has evolved and matured much quicker than people anticipated.”
