It’s been a mere six weeks since the federal government finalized regulatory guidance for the use of 45X credits, which allow U.S. manufacturers of climate technologies to sell tax credits for cash.
But for solar manufacturers, the market is already taking off. And it’s expected to grow, and even catalyze new investment, in the year ahead — though its longer-term role remains less clear.
- The top line: Advanced manufacturing credits are now being transferred for cash, and the new market could mean more money on hand for large U.S. solar manufacturers and developers. The sheer potential for those additional funds has already incentivized new investment in the wake of the Inflation Reduction Act’s passage.
- The current take: Alfred Johnson, CEO and co-founder of Crux, a startup launched last year to act as an intermediary in transfer sales, said the market for tax credit transfers is surging: “If that can happen, then that leads to a lot more renewable assets being built, a lot more decarbonization happening in the United States and ultimately lower power prices for US consumers,” he added.
In late December, Arizona-based solar manufacturer First Solar said it would sell $700 million worth of credits to a fintech company called Fiserv for 96 cents on the dollar. In a statement on the deal, First Solar executives said the transaction confirmed the marketability of advanced manufacturing tax credits.
First Solar was the first solar manufacturer to make such a transaction public, but other advanced manufacturing deals have been negotiated behind closed doors, according to Johnson.
Prompting developers to think differently
The U.S. Department of the Treasury and the Internal Revenue Service released guidance to regulate 45X sales in December, just before First Solar announced its deal. The regulatory certainty looks to have jumpstarted deals that manufacturers began contemplating more than a year ago, when the IRA passed.
Martin Pochtaruk, CEO at Canadian-based solar manufacturer Heliene, said the First Solar deal is the first manufacturing transaction he’s heard of closing. Until recently, no one would give credit transfer deals associated with advanced manufacturing a second look, he said.
Heliene, which already has 800 megawatts of U.S.-based PV manufacturing capacity, has committed to adding 500 more megawatts in Minnesota in 2024. That investment, Pochtaruk said, was purely motivated by the passage of the Inflation Reduction Act and its inclusion of 45X tax credits.
Heliene started looking at tax credit transfer deals as soon as the market was written into existence, he said. By November, the company had already received a few bids, but needed to invest in insurance before closing any transactions. Now that Heliene has a better handle on insurance pricing after discussing rates with a few companies, it’s heading into the negotiation phase on sales.
Though industry watchers expect near-term growth, it’s unclear how significant tax credit transfers will be for solar manufacturers over the longer-term, because the country’s largest solar manufacturers have not yet gone public with their strategies.
JinkoSolar, which has operations in Florida, and First Solar, which has factories in Ohio and announced the $700 million credit transfer sale in December, did not respond to requests for comment about their approach to credit transfer sales. Hanwha Q Cells, which has manufacturing capacity in Georgia, declined to comment.
But Pochtaruk said the transactions are largely enticing because of the uncertainty around tax credit payback; 45X credits are also available for “direct pay” from the government for five years.
“If we all knew that the IRS will pay [tax credits] within 60 days, nobody would transfer,” he added. “Everybody would hold to be paid whole, versus selling at a discount.”
While First Solar’s credit transfer sale earned 96 cents on the dollar, Pochtaruk said smaller sales under $50 million are likely to earn about 91 to 93 cents on the dollar. So far, the average 45X sale (which includes renewable products as well as battery and other components) is under $20 million with an average credit price of 89 cents on the dollar, according to a recent market report from Crux.
A new source of capital
When payouts from the IRA become clearer in the years ahead, credit transfer sales could slow. But in the meantime, Pochtaruk said being able to sell 45X credits is “groundbreaking.” Last year’s overall credit transfer market already reached an estimated $7 to $9 billion, according to Crux.
“We are all increasing capacity, we are doing CapEx and we need working capital,” he added. “It allows us to continue growing by monetizing [tax credits].”
Via Crux’s work, Johnson has found that developers and other companies think about tax equity “as a source of capital that helps them to build more facilities, and they want to monetize that tax equity at the highest possible price, with the least friction.”
“With this new mechanism of transferability, they can now do that directly,” he said.
(Editor’s note: Latitude Events is currently partnering with Crux on an upcoming forum that will feature Johnson; that partnership, however, does not influence Latitude Media’s editorial coverage.)
In addition to advanced manufacturing credits, companies can sell credits associated with renewable electricity production, carbon sequestration, clean hydrogen production, and more. The growing market is giving rise to new companies like Crux, as well as encouraging new investments for already-operating climate tech companies.
The startup is one of what Johnson estimates is dozens of intermediaries now helping broker credit transfer transactions. He expects that number to eventually reach hundreds, including both traditional financiers and other startups.
The overall credit transfer market was already between $7 and $9 billion in 2023, according to Crux’s market report. That’s a fraction of last year’s $23 billion in traditional tax equity deals, but Johnson said the transfer market has the potential to balloon to multiple times that of the current tax equity market.
Crux launched to create a marketplace to list credit transfer transactions and build software to help carry them out. Johnson said more than $6 billion in tax credits are currently listed on the platform, which is not public. In the coming year, he anticipates that the pace of new credits listed will increase, as will the size of the deals and the range of types of projects offering up those sales.
